BULANGALIRE BASHOSHERE ESPOIR

1039834

1. Difference between cost accounting and financial accounting.

Let first start by defining both of them.
Cost accounting by it definition is a systematic set of procedures for recording and
reporting measurements of the cost of manufacturing goods and performing services in
the aggregate and in detail.
It is a form of managerial accounting that aims to capture a company's total cost of
production by assessing the variable costs of each step of production as well as fixed
costs, such as a lease expense.
Financial Accounting by it definition is specific branch of accounting involving a process of
recording, summarizing, and reporting multiple transactions resulting from business
operations over a period of time. These transactions are summarized in the preparation of
financial statements, including the balance sheet, income statement and cash flow
statement, that record the company's operating performance over a specified period.

First of all, the use of cost accounting is not mandatory in all companies. Only those using
manufacturing processes or activities must use cost accounting. It must be used in firm
which produce something, to get it useful. For exemple, it’s not mandatory to use in a
church organization. it’s mandatory in manufacturing firms.
The use of financial accounting is a must for all organizations. It’s even use in church.
Cost accounting helps firms to determine the expenses associated with each of their
products. For example for a enterprise which produces bread, the company must
calculate each cost associated to the production of bread in order for example to set a
good price.
Financial accounting helps better understand a company’s profitability through its financial
statements. For example, when We make income in financial Accounting, it help to
understand the performance of a company over a period of time.
Cost accounting is a tool used by management to improve business process efficiency
while Financial accounting presents the business’s performance.
Cost accounting is not performed as per any particular period. Rather, it’s performed in a
short interval of time as in the production of a unit or product. When a product is produced,
we calculated the total cost of production, we can know the unit cost by dividing the the
total production cost by the total of units produced.
Financial accounting records an organization’s financial activity for a given financial period.
A company can choose to use the traditional calendar year of 12 months or adopt a
12-month fiscal year. For example a company can decide to make its Statement of
Financial Position each 31st December.
There are also differences in presentation between the two methods. Financial accounting
requires specific format parameters while As for cost accounting, the format of reports can
vary.
Cost accounting records the information related to material, labor and overhead, which
are used in the production process.
while financial Accounting records
the information which are in monetary terms.
Information provided by the cost accounting is used only by the internal management of
the organization like employees, directors, managers, supervisors and other internal
people while Users of information provided by the financial accounting are internal and
external parties like creditors, shareholders, customers.
About the purpose of each one, the purpose of cost accounting is reducing and controlling
costs while financial Accounting is keeping complete record of the financial transactions.
2. Differentiate between cost centers and profit centers and investment centers and
revenue centers.

Cost center and Profit center

Let start by defining what is cost center and what is profit center.
Cost center is a department or a distinct unit or division within the framework
of a company. These cost centers indirectly contribute to the organization’s
profits. For accounting, all expenses of that particular division are gathered
at these cost centers’ levels. These departments are not engaged in
production directly. They may assist in production or associated with other
functions such as sales, marketing, human resources, research,
development, etc. Many cost centers may not generate any revenue at all
for the company. Therefore, they generate profits indirectly for the
company.
Profit center is a unit of a company that generates revenue in excess of its
expenses. It is expected that, through the sale of goods or services, the unit
will turn a profit. This is in contrast to a cost center, which is a unit inside a
company that generates expenses with no responsibility for creating revenue.
The only expectation a cost center has is to lower expenses whenever
possible while staying with a specific budget that is determined at the
corporate level.
So a cost center helps a company identify the costs and reduce them as
much as possible. And a profit center acts as a sub-division of a business
because it controls the most important key-factors of every business.
Cost center doesn’t generate directly profit while profit center directly
generate and maximize profit.
Cost center in term of approach is for a long term while profit center is for
both a short or long term.
A cost centre has lesser complexity as the only focus is on costs while
A profit centre is more complex as it has to focus on costs, profits, and
revenue.
The primary purpose of cost centers is to support revenue generating functions of
the business through its operations. For example, human resources department
supports the business by managing matters of employees who work directly to
generate revenue.
While The primary purpose of profit centers is to generate actual revenue for the
business. For e.g. –different product lines in a manufacturing concern.
Both cost centers and profit centers are essential to the functioning of a business.
The efficient operation of a business is a result of the combined working of several
departments of a business.
Investment center and revenue center
Let start by defining both of them
Investment center is a profit center that is responsible for making
investment decisions in addition to revenue and cost related
decisions. Investment centers are business units that can utilize
capital to directly contribute to a company’s profitability.

Revenue center a segment of the organisation which is primarily responsible

for generating sales revenue. A revenue centre manager does not possess
control over cost, investment in assets, but usually has control over some of
the expense of the marketing department.
The manager of an investment centre has more author ity and responsibility
than the manager of either a cost centre or a profit centre. Besides controlling
costs and revenues, he has investment responsibility too. ‘Investment on asset’
responsibility means the authority to buy, sell and use divisional assets.
In order to accomplish the goal of increasing revenues, the manager
of a revenue center would focus on developing specific skillsets of the
revenue center’s employees.
The reservations group of Congo airways is an example of a segment
that may be structured as a revenue center. The employees should
be well-trained in providing excellent customer service, handling
customer complaints, and converting customer interactions into actual
sales.
Investment center have purpose as selecting investments that
increase the value of the organization while revenue center is to to
make more sales as possible.