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Prepared by
Lecia Allen
MSc., Bsc., T.Dip
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Cost accounting deals with calculation
(allocation, apportionment and absorption)
and measurement of resources utilized for
different business activities, usuallyproduction and service provision. It relates
to calculation of per unit cost using different
costing techniques.
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On the other hand Management accounting
relates to the use of all such information
gathered and processed by cost accounting
along with financial accounting, bymanagement. Management accounting is
about getting the information from cost
accountants and financial accountants and
then using it for decision making purposes.
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Therefore, cost accounting supports management
accounting and in turn management accounting
pushes cost accounting further according to theneeds of the management. Because of this strong
bond between cost accounting and management
accounting they are to mean one and the same
thing now-a-days.
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Financial accounting defined as the
representation of the company or firms
activities done during the period and its
financial position at the end of theaccounting period. It deals with the
preparation and presentation of financial
statements namely Balance Sheet, Profit and
Loss Account, Cash Flow Statement and
Statement of Changes in Equity.
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Cost Accounting helps in the determination
of the cost of the product, how to control it
and in making decisions. It makes use of both
past and present data for ascertainment ofproduct cost. There is no specific format for
the preparation of cost accounting
statements.
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It is used by the internal management of the
company and usually the cost accountant prepares
this to ascertain the cost of a particular producttaking into account the cost of materials, labor and
different overheads. No certain periodicity is
needed for the preparation of these statements and
they are needed as and when required by themanagement.
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This makes use of certain rules and regulations
while computing the cost of different products in
different industries.
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Financial Accounting gives out information
about the enterprises financial activities and
situation. It makes use of the past or
historical data. All the transactions andstatements are recorded and presented in
terms of money mostly. Persons who make
use of these financial statements are
outsiders like banks, shareholders, creditors,
government authorities etc.
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Financial statements are usually presented once in
a year and there is a certain format for their
presentation. It is mandatory for the companies tofollow the rules and policies framed under GAAP
(Generally Accepted Accounting Principles). It
indicates whether the company is running at a loss
or profit.
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Unlike the above two accounting,
Management Accounting deals with both
quantitative and qualitative aspects. This
involves the preparation of budgets andforecasts to make viable and valuable future
decisions by the management. Many
decisions are taken based on the projected
figures of the future.
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There is no question of rules and regulations to be
followed while preparing these statements but the
management can set their own principles. Like costaccounting, in management accounting also there is
no specific time span for its statement and report
preparation. It makes use of both cost and
financial statements as well to analyze the data.
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Management accounting measures and reportsfinancial and non-financial information thathelps managers make decisions to fulfill thegoals of an organization
Managers use management accountinginformation to
choose, communicate and implement strategy
coordinate product design, production and marketingdecisions
Management accounting focuses on internalreporting
Management accounting is future oriented
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accumulate data and report reliable results to all
levels of management
Attention-directing
make visible opportunities and problems on
which managers need to focus
Problem-solving conduct comparative analysis to identify the best
alternatives in relation to the organizations
goals
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1. To determine the per unit cost of a
product/service
2. To guide the management of firms about the
cost of the product/service
3. Helps them to set the prices of product
according to cost of product rather arbitrary
pricing
4. Helps management to achieve their target
profit efficiently
5. Guides the government about the pricing of
products so that governments can maintain
prices of basic products for consumers.
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