State three points of similarities between financial accounting and cost accounting.
Both financial and cost accounting are interdependent and their co-existence enables businesses to compute costs and sales realistically, properly and most importantly helps them to avoid loss
some of similarities are mentioned below
Financial accounting is used to produce reports that include financial statements, including the balance sheet, income statement and statement of cash flows. This information is given to external parties, such as stockholders, investors and lending institutions. With cost accounting, the documents produced through financial accounting are used by people within the company to make internal decisions. The use of financial statements is vital to both types of accounting. The difference lies in the groups of people that use the information.
2 Historical Data
Cost accountants and financial accountants both are interested in historical information about a company. This information is provided through financial statements. A primary reason that this information is important is to make future decisions for the company. With both types of accounting, future plans are created based on historical information. This includes forecasting, creating budgets and planning future projects.
3 Company Performance
Both financial accounting and cost accounting focus on ways to improve company performance. Financial accounting, however, concentrates on an entire company, while cost accounting generally divides performance by division, location or region. Financial accounting focuses on company performance by closely monitoring accounts payables and accounts receivables. Cost accounting also monitors performance issues by viewing these accounts and other data such as the cost of goods sold.
Prepare a chart showing the different elements of cost. Ans.
Cost accounting is the process of accounting for costs. It embraces the accounting procedures relating to recording of all income and expenditure and the preparation of periodical statements and reports with the object of ascertaining and controlling costs. It is thus the formal mechanism by means of which costs of products or services are ascertained and controlled.
Costing is “the technique and process of ascertaining costs.” Cost accounting is different from costing in the sense that the former provides only the basis and information for ascertainment of cost. Once the information is made available the costing can be carried out arithmetically by means of memorandum statements or by method of integral accounting. However, the two terms costing and cost accounting are often used interchangeably. No such distinction has also been observed for the purpose of this book. Wheldon has given an exhaustive definition of costing after expanding the ideas contained in the definitions of the terms ‘costing and cost accounting’. According to him costing is, “the classifying recording and appropriate allocation of expenditure for the determination of the costs of products or services; the relation of these costs to sales values; and the ascertainment of profitability”. ELEMENTS OF COST
There are three broad elements of cost:-
(a) Material: - The substance from which the product is made is known as material. It may be in a raw or a manufactured state. It can be direct as well as indirect.
Direct Material: - All material which becomes an integral part of the finished product and which can be conveniently assigned to specific physical units is termed as “Direct Material”. Following are some of the examples of direct material:-
(i) All material or components specifically purchased produced or requisitioned from stores. (ii) Primary packing material (e.g. – cartoon, wrapping, cardboard, boxes etc.) (iii) Purchased or partly produced...
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