How Is Cost Accounting Differentiated From The Financial Accounting?
Cost and Financial accounting are the exclusive economic branches of a business company that operates on similar working principles. However, there exist some common differences between the two which includes
- Variations in the flexibility aspect. Financial accounting is generally performed after a specific event while the cost accounting is considered more flexible as it can be analyzed in both the retro and pro-active calculations.
- Nature of working. This signifies the criteria of working where the FA categorizes, registers and offers all the dealing performed in terms of money transaction whereas the CA organizes, record and interprets the items like the material and labor charge along with the operating cost that is priced for production and selling of the output product.
- Underlying principle used. FA works on the generally accepted policies of accounting which briefs the reputing financial transactions of a business whereas CA is free to choose any accounting technique which can further produce useful data.
- The time limit of accounting. While FA is designed for operating with a specified period like a year or less, the CA statements do not support such a definite time gap and are open to being prepared whenever needed.
- The calculation method adopted. The FA focus on a dual-entry scheme for carrying out the financial business transaction but the case of CA is quite different. The second type collects all the major and minor events of an organization and adopts measures that can be employed for carrying out other activities in the same enterprise.
However, the review on BTC profit of a trading company confirms the use of both FA and CA for its effectual working.
How to consider the cost elements connected with a business organization?
A manufacturing unit is always involved in the processing of raw materials that later enables them to convert it to the final product. However, the company uses the staff members along with other machinery and facilities to accomplish the task. At the end of the session, it is equally important to analyze the corresponding production cost of the company that includes the integrated amount spent on all the small operations. So, briefing the cost things in more of an appropriate manner, it can be subdivided into various elements which require good accounting and control.
The main elements of cost can be categorized as
- The direct material cost
- The cost required for assigning the staff members
- All the direct expenses met in between
- And all the overhead expenses incurred during the production.