Cost Accounting – Equipping Yourself for Better Decision Making

Keywords – Cost Accounting Objectives – Principles of Cost Accounting – Purpose of Cost Accounting – Objectives of Cost Accounting – Scope of Cost Accounting – Nature of Cost Accounting – Uses of Cost Accounting

As stated as our working principle: Accounting is not just about crunching numbers.

In fact, the right form of accounting can be a valuable tool for business managers to improve the overall performance of an organisation.

One such principle in accounting is cost accounting.

Cost Accounting

Cost accounting is a subset of management accounting, the purpose of which is to capture all costs incurred by an organisation during the delivery of its products and services, as well as the recurring costs. 

The full extent of the said costs include fixed costs, variable costs, operating costs, direct costs, and indirect costs

The representation of this form of accounting can take various shapes. The most significant representations include standard costing; where a general cost of known activities is accounted for; or activity-based; where the costs are divided by the department against set objectives. Other methods include Lean Accounting and Marginal Costing. We will be covering these topics in upcoming blogs and advice pieces. 

To provide some context here, Lean Accounting, similar to Lean Management Philosophy in general, carries the aim of improving financial and accounting practices within an organisation. On the other hand, Marginal Costing is a short-term economic decision model that focuses on measuring the cost of adding further to already existing products and services. Doing so allows the management to understand the impact of changing levels of production within an organisation and base their decisions on the provided information.

The bottomline is, cost accounting is an internal management tool that can be used to make informed decisions. This also signifies the difference between cost accounting and financial accounting.

Difference from Financial Accounting

Financial accounting summarises the information for outside creditors and investors associated or interested in an organisation. Specifically, financial accounting accounts for revenues, expenses, assets, and liabilities, among other related information.

On the other hand, as stated, cost accounting is an internal management tool and is therefore not as relevant for other facets connected to an organisation.

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