Financial Accounting And Cost Accounting | Finance

Difference Between Financial Accounting And Cost Accounting

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Financial Accounting And Cost Accounting

The difference between financial accounting and cost accounting is that cost accounting focuses on the day-to-day flow of money in and out of a company or institution, whereas It is a broader term for the management of assets and liabilities and the planning of future growth.

It is an art of systematically keeping the record of business events and transactions, so as to ascertain the financial position and profitability of the company at the end of the financial year. It is not exactly the same as in finance.

While financial accounting aims at providing financial information of the company to the users for the purpose of rational decision-making, cost accounting focuses on matters relating to money, investment, credit, banking, and markets. Many think that financial accounting and financial management are one and the same thing, but these are two different disciplines.

It is a specialized branch of accounting that keeps track of a company’s financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statements such as an income statement or a balance sheet.

Companies issue financial statements on a routine schedule. The statements are considered external because they are given to people outside of the company, with the primary recipients being owners/stockholders, as well as certain lenders. If a corporation’s stock is publicly traded, however, its financial statements (and other financial reporting) tend to be widely circulated, and information will likely reach secondary recipients such as competitors, customers, employees, labor organizations, and investment analysts.

It’s important to point out that the purpose of financial accounting is not to report the value of a company. Rather, its purpose is to provide enough information for others to assess the value of a company for themselves.

Because external financial statements are used by a variety of people in a variety of ways, it has common rules known as accounting standards and as generally accepted accounting principles (GAAP). In the U.S., the Financial Accounting Standards Board (FASB) is an organization that develops accounting standards and principles. Corporations whose stock is publicly traded must also comply with the reporting requirements of the Securities and Exchange Commission (SEC), an agency of the U.S. government.

It is required to follow the accrual basis of accounting (as opposed to the “cash basis” of accounting). Under the accrual basis, revenues are reported when they are earned, not when the money is received. Similarly, expenses are reported when they are incurred, not when they are paid.

CAREERS

As a financial accounting professional, you’ll be tracking and reporting flows of money and ensuring compliance with best practices. You’ll rely on Generally Accepted Accounting Principles (GAAP) and you’ll likely come to be familiar with the tax code, too. Section 446 of the Internal Revenue Code will be your friend. That’s the section of the tax code that covers “General rules for methods of financial accounting.”

If you choose financial reckoning, you have a different range of options. You could become a financial analyst, investment banker, financial examiner, personal financial advisor, or a money manager. You could work in consulting or corporate finance. Banking and insurance underwriting is also open to financing majors. And of course, entrepreneurship is another route that’s open to financing types.

Difference Between Financial Accounting and Cost Accounting

Cost Accounting is the art and science of applying the costing methods, techniques, and principles to the products, projects, and processes to improve profitability and to reduce the overall cost of the business. It is the act of classifying, storing, recording, and analyzing the financial transactions of the company through financial statements to improve profitability and to maintain the transparency of the company.

  • Objective The main objective of cost accounting is to find out the per-unit cost of every product, process, or project. The main objective of financial reckoning is to reflect the accurate financial picture of an organization to the external stakeholders, toward whom the organization is responsible.
  • Scope (Cost Accounting vs Financial Accounting) The scope of cost accounting revolves around management and its decision-making processes. It is more of an internal score than an outside reflection. The scope of financial accounting is more pervasive; because it tries to disclose an accurate financial picture to its stakeholders.
  • Estimation (Cost Accounting vs Financial Accounting) accounting is based on the comparison between the actual transaction and the estimation of the cost of the transaction. In financing, the recording is always done on the actual transactions only. There’s no place for estimation.
  • Particular period (Cost Accounting vs Financial Accounting) accounting isn’t done as per any particular period. Rather it’s calculated as per the requirement of the management decision-making process. It is recorded at the end of a particular financial period. Generally, a financial period starts on 1st April of a year and ends on 31st March of the next year.
  • Reduction of cost- Cost Accounting serves two purposes. Firstly, it ensures that the cost of operations (or producing a product) is reduced by setting up an estimated cost for each unit of a product. Secondly, cost accounting reflects the true picture of operations. Financing, on the other hand, doesn’t concentrate on cost control; rather its only purpose is to disclose the right information in an accurate way.
  • Tools/Statements (Differences between Cost Accounting and Financial Accounting) There are mainly three things that accounting ascertains – the cost of sales of the product, how much margin the organization would add, and the selling price of the product. Of course, cost accounting is much more than that, but these are the essentials of cost accounting. It takes the help of journals, ledgers, trial balances, and financial statements such as income statements, balance sheets, shareholders’ equity statements, and cash flow statements.
  • Measurement of efficiency (Comparison of Accounting and Financial Accounting) As cost accounting tries to find out the pixel view of operations, it is able to provide a lot of information regarding the loopholes of labors and other inputs and also offers valuable feedback to improve the efficiency of the inputs. It shows the big picture of a company; as a result, financing isn’t able to improve the efficiency of the inputs.
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