Financial accounting versus cost accounting

The two main areas of accounting are financial accounting and cost accounting or managerial accounting. Financial accounting is primarily concerned with the external financial statements of those who provide funds to the entity and other persons who may have vested interests in the financial operations of the firms. Fund providers include stockholders (the owners of the company) and creditors (those who provide loans. Investors and those who help them assimilate the information, financial analysts, are also interested in financial reports are generally accepted accounting principles (GAAP), as stipulated by the Financial Accounting Standards Board and its predecessor, the Accounting Principles Board. Although there is some degree of flexibility in the financial accounting of the decision to process certain transactions, any deviation from GAAP exposes the accountant to a potential lawsuit. Under GAAP, the preparation of financial reports is based on historical data. Financial information is limited to the operations of the firm as a whole with minor references to the operations of each one of them. Product lines and divisions.

The accounting of costs or managerial is mainly responsible for the accumulation and analysis of the revealing information for internal use of the managers in the planning, control and decision making. The following two sections present some definitions of cost accounting, according to the National Association of Accountants, but the key points to remember is that the financial measures generated may take any form of management deemed to be revelatory for internal purposes. Historical information is often used in cost accounting systems, and estimates of future costs or benefits are often included as well. However, the level of detail about some product lines and divisions is determined by management activities.

It cannot be overemphasized that the design of a cost accounting or management system is based on the needs of management. It will explain the procedures used by many firms in the development of their systems, but remember that if you can develop a better one for high cost accounting or managerial, the cost accountant or manager, the cost accountant only needs to obtain permission from the high management to change it. The firm does not require the opinion of an external auditor to inform him whether the new system is in accordance with GAAP. In fact, the understanding of the needs of internal managers by the external auditor is generally limited. In practice we have seen that many external auditors suggest systems that not only have little value for internal purposes, but provide erroneous information.

The importance of tailoring cost accounting to meet the needs of new business environments is clear from the current challenge faced by cost counters. In the course of the 1980s, three developments aimed at improving the competitive position of US manufacturing firms were observed with respect to the rest of the world. First, greater emphasis was placed on product quality. In this case quality means the degree to which the product meets its specifications. Quality in this sense is commonly known as quality of conformity and associated costs are called cost of quality. Traditional cost accounting systems are not designed to measure quality; as a result, little is known about how these can be reduced.