Both cost accounting and financial accounting are the parts of accounting. Both provide useful information to the businessman for decision making. Both can be used for reducing cost and increasing the profit and wealth of business. But there are lots of differences between cost accounting and financial accounting. Financial accounting provides information of expenses on the basis of historical transactions. In cost accounting, we show detailed information on expenses.
Financial accounting’s income statement will show just the total material cost, direct expenses, indirect expenses; sale and net profit but it will not show the each product’s material cost, labor cost, overhead cost, sale, and net profit. All this information can be obtained through cost accounting.
Now, we are explaining the differences between cost accounting and financial accounting.
- Meaning: Cost accounting is that part of accounting which is helpful to calculate the cost and control the cost. In cost accounting, we deeply study the variable cost, fixed cost, overheads, and capital cost.
- Objective: We cannot take all decisions on the basis of information which has been provided by financial accounting. After making the financial statements under financial accounting, we calculate the cost of each unit and use the techniques of cost accounting for better decision making.
- Law: There is not any restriction on the cost accounts. It can be made according to the need of a company but some company must audit their cost accounts under cost audit.
- Controlling: In cost accounting, we study the techniques of controlling the cost. All the costs are calculated for the purpose of controlling the cost. For example, Company produces product A, B, and C. If product C is generating 30% but product A and B are generating just 5%. We will try to control the cost of A and B product through different techniques of cost control.
- Profit Analysis: In cost accounting, to find the profit per job or per batch or per service unit is possible.
- Meaning: Financial Accounting is that part of accounting in which we record the transactions and we make the financial statements. Through making the financial statement, it provides information of profitability and financial position to the interested parties.
- Objective: Main objective of financial accounting is to show the financial statement correctly.
- Law: In financial accounting, there are lots of law restrictions. For example, company accounts and financial statements must be according to the format of company law. It should also follow the rules of IFRS and income tax law.
- Controlling: In financial accounting, we just record the transactions correctly. We do not care to control the cost.
- Profit Analysis: In financial accounting, we make the income statement which shows the net profit or loss or whole organization not one job of the batch.