The differences between Cost Accounting, Financial Accounting and management Accounting

DIFFERENCES BETWEEN COST ACCOUNTING, FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

Accounting has three branches, namely; Financial Accounting, Cost accounting, and Management accounting.

Financial accounting

This records financial transactions between a business and outsiders (i.e.: it’s customers, suppliers, employees, owners or shareholders, management, government, and its agencies, financial institutions, lenders, etc and prepares and presents  Income Statement (Trading and Profit and Loss Account), Statement of Financial Position (Balance Sheet) and Statement of Cash Flow, at least once every year, to the interest holders of a business.

Cost accounting

This is the establishment of budget, standard cost and the actual cost of an activity, operation, a department, a product or service and the analysis of variance (differences), profitability and social use of the fund.

Management accounting

This is an integral part of management that is concerned with identifying, preparing and presenting financial accounting and cost accounting information that is used in formulating policies, decision makings, and control.

The table below shows the differences between cost accounting and financial accounting

FINANCIAL ACCOUNTING	COST ACCOUNTING
1.      It is mainly for external purpose	1. It is mainly for internal purpose
2.      It is compulsory especially, for limited liability companies	2. It is optional
3.      It is aggregate in nature, in a form of summary	3. It is detailed and analytical in nature
4.      It prepares statements covering longer periods like yearly	4. It prepares statements covering shorter periods        like daily, weekly. Monthly, etc.
5.      It is purely financial in nature	5. Information is both financial and non-     financial
6.      It is purely historical	6. It is both historical and forward-looking
7.      It follows Generally Accepted Accounting Principles (G.A.A.P.)  in preparing and presenting information	7. It does not  follow any  Generally Accepted      Accounting Principles (G.A.A.P.)  in preparing        and presenting information
8.      It follows a strict accounting format in preparing and presenting information SIMILARITIES BETWEEN COST ACCOUNTING AND FINANCIAL ACCOUNTING 1.      They both use the debit and credit entries 2.      They are both useful information that is financial in nature 3.      They both use historical information 4.      They are both used by managers for making decisions 5.      They both prepare profit and loss statement 1. Tabulate five differences between financial accounting and cost accounting. 2. State three similarities between financial accounting and cost accounting.	8. It does not  follow any strict accounting format        in preparing and presenting information