Financial Accounting and Cost Accounting
The major differences between Financial Accounting and Cost Accounting are as follow:
|S.No.||Financial Accounting||Cost Accounting|
|1||Provides general information about the business- profit and loss account, balance sheet of business owners- to business owners and outside partners.||Provides information to the management for proper planning, operation, control, and decision making.|
|2||Classifies, records, and analyses the transactions in a subjective manner -according to the nature of expense.||Records expenditure in an objective manner- according to purpose for which costs are incurred.|
|3||Lays emphasis on recording without attaching importance to control.||Provides a detailed system of control for materials, labour, and overhead costs with the help of standard costing and budgetary control.|
|4||It reports operating results and financial position (usually) at the end of the year.||It gives information through cost reports to management as and when desired.|
|5||Financial accounts are accounts of the whole business and are independent in nature.||Cost Accounting is only a part of the financial accounts and discloses profit or loss of each product, job or service.|
|6||Only transactions which can be measured in monetary terms are recorded.||Non-monetary information like number of units/ hours, etc. are used.|
|7||Deals with actual facts and figures only.||Deals partly with facts and figures and partly estimates/ standards.|
|8||Do not provide information on efficiencies of various workers/ plant and machinery.||Provides valuable information on the efficiencies of employees and plant & machinery.|
|9||These accounts are kept to meet the statutory requirements (of Companies Act)||Generally, cost accounts are kept voluntarily to meet the requirements of the management. Cost Accounting records are kept as per the Companies Act in some industries only.|
Some items are included in financial accounts but not in cost accounts:
- Appropriation of profits
- Dividends paid
- Taxes on income and profits, etc.
- Matters of pure finance
- Purely financial charges (interest on bank loan, mortgages; penalties and fines, etc.)
- Purely financial incomes (interest received on bank deposits; rent receivable; profits made on sale of investments, etc.)
- Abnormal gains and losses
- Losses or gains on sale of fixed assets.
- Loss to business property on account of theft, fire, or other natural calamities.