Uses of cost accounting as follows:

 1. Helps in Ascertainment of Cost: Cost Accounting helps in the ascertainment of cost of

each product, process, job, contract, activity etc. by using different methods of costing such
as Job Costing and Process Costing.

 2. Helps in Control of Cost: It helps in the control of material costs, labour costs and
overheads by using different techniques of control such as Standard Costing and Budgetary
Control.

 3. Helps in Decision making: It helps the management in making various decisions such as–

a) Whether to make or buy a component

(b) Whether to retain or replace an existing machine
(c) Whether to process further or not
(d) Whether to shut down or continue operations
(e) Whether to accept orders below cost or not
(f) Whether to expand or not
(g) How much reduction in the selling price should be made in case of depression?
 4. Cost Accounting Helps in fixing Selling Prices: It helps the management in fixing
selling prices of products or services by providing detailed cost information.

 5. Cost Accounting Helps in Inventory Control: It helps in inventory by using various

techniques such as ABC analysis, Economic Order Quantity, Stock levels, Perpetual
Inventory system and Continuous Stock Taking, Inventory Turnover Ratio etc.

 6. Cost Accounting Helps in Cost reduction: It helps in the introduction of cost reduction
programme and finding out new and improved method to reduce costs.

 7. Helps in measurements of Efficiency: It helps in measurements of efficiency of

operations through establishment of standards and variance analysis.

 8. Helps in preparation of Budgets: It helps in the preparation of various budgets such as

Sales Budget, Production Budget, Purchase Budget, Man-Power Budget, Overheads budget.

 9. Helps in identifying Unprofitable Activities: It helps in identifying unprofitable

activities so that the necessary correction action may be taken.

 10. Helps in identifying Material Losses: It helps in identifying material losses such as
wastage, scrap, spoilage and defective through report on material losses so that the necessary
corrective action may be taken.

 11. Helps in identifying Idle Time and Labour Turnover: It helps in identifying idle time
and labour turnover through the report on idle time and labour turnover so that the necessary
corrective action may be taken.

 12. Helps in identifying Idle Capacity: It helps in identifying idle capacity so that the
necessary corrective action may be taken.

 13. Helps in improving Productivity: It helps in improving productivity of materials and

labour.

 14. Helps in Cost Comparison: It helps in Cost Comparisons such as –

(a) Comparison with Standard Figures: Comparison of actual figures with standard of
budgeted figures for the same period and the same firm;
(b) Intra-firm Comparison: Comparison of actual figures of one period with those of
another period for the same firm;
(c) Inter-firm Comparison: Comparison of actual figures of one firm with those of another
standard firm belonging to the same industry; and
(d) Pattern Comparison: Comparison of actual figures of one firm with those of industry to
which the firm belongs.

 15. Helps in checking the accuracy of financial accounts: It helps in checking the
accuracy of financial accounts with the help of reconciliation statement prepared to
reconcile the profit as per cost accounts with the profit as per financial accounts.

Differences Between Cost Accounting and Financial Accounting

The following are the major differences between cost accounting and financial
accounting:

1. Cost Accounting aims at maintaining cost records of an organisation.

Financial Accounting aims at maintaining all the financial data of an
organisation.
2. Cost Accounting Records both historical and per-determined costs.
Conversely, Financial Accounting records only historical costs.
3. Users of Cost Accounting is limited to internal management of the entity,
whereas users of Financial Accounting are internal as well as external parties.
4. In cost, accounting stock is valued at cost while in financial accounting, the
stock is valued at the lower of the two i.e. cost or net realisable value.
5. Cost Accounting is mandatory only for the organisation which is engaged in
manufacturing and production activities. On the other hand, Financial
Accounting is mandatory for all the organisations, as well as compliance with
the provisions of Companies Act and Income Tax Act is also a must.
6. Cost Accounting information is reported periodically at frequent intervals, but
financial accounting information is reported after the completion of the
financial year i.e. generally one year.
7. Cost Accounting information determines profit related to a particular product,
job or process. As opposed to Financial Accounting, which determines the
profit for the whole organisation made during a particular period.
8. The purpose of Cost Accounting is to control costs, but the purpose of
financial accounting is to keep complete records of the financial information,
on the basis of which reporting can be done at the end of the accounting
period.
 BASIS FOR
COST ACCOUNTING
COMPARISON
Meaning Cost Accounting is an accounting
system, through which an
organization keeps the track of
various costs incurred in the
business in production activities.
Information type Records the information related
to material, labor and overhead,
which are used in the production
process.
Which type of cost Both historical and pre-
is used for determined cost
recording?
Users Information provided by the cost
accounting is used only by the
internal management of the
organization like employees,
directors, managers, supervisors
etc.
Valuation of Stock At cost
Mandatory No, except for manufacturing
firms it is mandatory.
Time of Reporting Details provided by cost
accounting are frequently
prepared and reported to the
management.
Profit Analysis Generally, the profit is analyzed
for a particular product, job,
batch or process.
Purpose Reducing and controlling costs.
Forecasting Forecasting is possible through
budgeting techniques.
FINANCIAL ACCOUNTING
Financial Accounting is an
accounting system that captures the
records of financial information
about the business to show the
correct financial position of the
company at a particular date.
Records the information which are in
monetary terms.
Only historical cost.
Users of information provided by the
financial accounting are internal and
external parties like creditors,
shareholders, customers etc.
Cost or Net Realizable Value,
whichever is less.
Yes for all firms.
Financial statements are reported at
the end of the accounting period,
which is normally 1 year.
Income, expenditure and profit are
analyzed together for a particular
period of the whole entity.
Keeping complete record of the
financial transactions.
Forecasting is not at all possible.