DIFFERENCE BETWEEN COST ACCOUNTING AND FINANCIAL ACCOUNTING

Sl. No. 01 02 Nature

Principal objective Users of accounting information

Financial accounting Stewardship of business for benefit of shareh olders Provision of information to managers to help t hem in decision making, planning and control

Cost accounting seek to improve economy Provision of information to external users outside the business.

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Report recipients

External/outsiders namely the shareholders and government (tax)

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Outputs

Summary (usually annual) -profit and loss account, balance sheet & cash flow statement

internal parties like directors and company managers Detailed monthly and annual management accounts showing results by product and function ad hoc reports

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Regulating framework

Accounting concepts (as laid down by the Accounting Standards Board) plus statutory requirements of the Companies Acts

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Legal requirements Frequency of reporting Approximations

Legal requirement for PLCs (public limited company). published annually

Accounting concepts (as laid down by the Accounting Standards Board) plus statutory requirements of the Companies Acts optional

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Legalization

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Application

May be required daily must be accurate requires information r apidly with more app roximate information Financial accounting for a limited company is Not made a legal requirement. Subject to audits compulsory by law and other strict regulatory requirements and audits, etc are not needed Financial accounting is applicable towards the More segmented to in activities of the whole organization. dividual department li ke purchasing, marketing, etc

There are certain items which are excluded from cost accounting. These may be the following.

Profit or losses arising on sale of fixed assets: Any profit or loss arising on sale or transfer of fixed assets are purely financial in nature and excluded from cost accounting. Amortization of fictitious assets: These are the following intangible and fictitious assets only charged in financial accounting but find no place in cost accounting. Goodwill, patent, copy right, advertisement, preliminary expenses etc. Appropriation of Profits: Certain portion of profits are appropriated for specific purposes. These are called appropriation of profits. It is not considered in cost accounting. These may be the following: donation and charities, Income Tax paid, Dividend paid, Transfer to general Reserve, Transfer to Capital Reserve etc. Financial Incomes: There are certain incomes which are purely financial in nature and not included in cost accounting. These are the following: Rent Receivable, Share transfer fee received, Interest received on bank deposits, Dividend Received, Brokerage Received, Discount & commission Received etc.