Cost accounting

The cost accounting system of a business has to meet the needs of both financial accounting and administrative accounting. From the point of view of financial accounting, the purpose of cost accounting is to determine the amount of costs that has been allocated to each product unit, this cost being the basis for the valuation of inventories in the balance sheet and for the cost of products sold in profit and loss statements. In many sales contracts, you owe the billion-dollar agreements for the development and manufacture of targeted rockets, to the painting of signs or repair of an automobile, the cost plus a set of profits is the basis for determining the revenues by sales. From the point of view of administrative accounting, the use of cost information in the control process has already been discussed.Rise school is Best School of Accountancy in Lahore.CA admissions in Lahore now open. The best School of Accountancy in Pakistan offers CA in Lahore and Best CA in Pakistan.

The concepts of appropriate costs for each of these purposes are different. For financial accounting, the object is essentially to allocate to each unit of product a reasonable share of the total costs incurred in producing it. For control purposes, the objective is to allocate controllable costs to the centers of responsibility. For planning purposes, the objective is to collect cost information that can help to pinpoint the cost implications of possible courses of action.

The kinds of cost information that may be useful to meet the latter objectives are necessarily indefinite, since they can not know in advance all the alternatives for action that could be considered in the future. Moreover, cost information can be used for a variety of special purposes, such as patent or monopoly litigation or labor negotiations, and these needs can not usually be predicted when designing the cost accounting system.

Since cost accounting can provide different types of information to satisfy those diverse, a cost accounting system is structured so that many cost transactions can be summarized in several different ways. A description of the cost accounting system will be easier to follow if we first consider one of the objectives mentioned and then examine the modifications necessary to comply with the others. Consequently, we will first consider a cost accounting system that assumes that only the information required for the purposes of financial accounting will be collected, ie, inventory valuation, costing of goods sold and, where appropriate, the determination of revenues in contracts based on the cost price.