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Differences between financial accounting and cost accounting

DIFFERENCES BETWEEN FINANCIAL ACCOUNTING AND COST ACCOUNTING

The following are some of the differences between financial accounting and cost accounting.

(i)                 Purpose. Financial accounting provides information about the financial position of the company to its owners and other related parties. But cost accounting provides information about the costing aspect of the management. And also provides information about the cost per unit of the product manufactured by the concern.

(ii)               Compulsory. All the business organizations keep the financial accounting in order to meet the requirements of Partnership Act, Companies Act and Income Tax Act. But cost accounting is kept in the organization according to its willingness.

(iii)             Overall analysis of profit. Financial accounting concentrates on the whole business and overall analysis of profit is possible. It discloses the profit or loss of the business as a whole for the one year transaction through the financial statements. But the cost accounting has to disclose the profit or loss of a particular product during a particular period of time. Under the costing, overall analysis of profit is not possible.

(iv)             Reporting of costs. In the financial accounting, costs are reported in a consolidated manner in the financial statements. But under cost accounting, costs are divided on a unit basis in cost accounts.

(v)               Mode of transaction. Financial accounting is concerned with the external transaction. Normally it deals with the monetary transaction on the basis of payment or receipt of cash. But cost accounting is related to the internal transactions only. It could not deal with the monetary transaction.

(vi)             Price fixation. Cost accounting provides sufficient information for price fixation of a product. With the help of the cost accounting only, the concern fixes the price of its product. But financial accounting could not provide any assistance with regard to price fixation.

(vii)           Stock valuation. Under financial accounting, stocks are valued at cost or market price whichever is less. But in the case of cost accounting, stocks are valued at cost.

(viii)         Nature of dealings. Financial accounting is concerned with only actual facts and figures. But cost accounting is concerned partly with the actual facts and figures and partly with estimates.

(ix)             Science. Financial accounting is a positive science. But cost accounting is sometimes positive science and sometimes normative science.