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.
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.