Financial Accounting - Involves the systematic recording of business transactions, governed by a body of

international financial reporting (IFRS) leading to the preparation of financial statements for the use of
various interested parties, internal as well as external.

Management Accounting - Is concerned with providing financial information to persons within the
organization to enable them to make informed judgments and effective decisions which further the
organization’s goals.

Cost Accounting - A subfield of accounting that records, measures and reports information about costs.
A cost is a sacrifice of resources and generally represented in the accounting system by outlay of cash or
promises to pay cash in the future or the expectation of the value of an asset. - Provides information to
management accounting and financial accounting.

ACCOUNTING – Recording, Organizing, Summarizing, Reporting

Reports to various interested parties (external and internal):

- Owners - Lenders - Tax authorities

- Regulators - Managers

Reports to managers (internal)within the organization for:

- Planning - Directing and motivating - Controlling - Performance and evaluation

Manufacturing Costs -are all the costs associated with production of goods

a. Direct Materials - All raw material costs that become an integral part of the finished product
and that can be conveniently and economically assigned to specific units manufactured.
b. Direct labor - All labor costs related to time spent on products that can be conveniently and
economically assigned to specific units manufactured.
c. Manufacturing Overhead - the third element of manufacturing cost, includes all costs of
manufacturing except direct materials and direct labor.

An example equipment-maintenance departments.

Indirect materials and Indirect labor

Nonmanufacturing Costs - generally include costs related to selling and other activities not related to
the production of goods.

 Marketing costs - Marketing or selling costs include all costs associated with marketing or selling
a product or all costs incurred by the marketing division from the time
 General and administrative costs - General administrative costs include all executive,
organizational and clerical costs associated with the general management of the organization
rather than with manufacturing, marketing or selling.
 Production Costs in Service Industry Firms and Nonprofit Organizations - Service industry firms
such as schools, hotels, banks, airlines, accounting firms, and automotive repair shops and many
nonprofit organizations are also engaged in production.

Product Costs - include all the costs that are involved in acquiring or making a product

Period Costs- Period costs are all the costs that are identified with accounting periods and not
included in product costs

a. Variable Costs - Costs that change directly in proportion to changes in activity (volume) Direct
labor and direct materials are examples of variable costs

b. Fixed Costs -Costs that remain unchanged for a given time period regardless of change in activity
(volume). Rent, insurance on property, maintenance, and repairs of buildings, and depreciation of
factory equipment are examples of fixed costs.

c. Semivariable Costs or Mixed Costs -Costs that contain both fixed and variable elements.
Examples of social security taxes, materials handling, personnel services, heat, light, and power.
These cost elements must be divided into their proper elements.

Costs classified by Types of Inventory

a. Raw Materials Inventory - The cost of all raw material and production supplies that have been
purchased but not used at the end of the accounting period.

b. Work-in-process Inventory - The cost associated with goods partially completed at the end of the
accounting period

c. Finished Goods Inventory- Cost of completed goods that have not been sold at the end of the
accounting period.

d. Merchandise Inventory - Cost of purchased merchandise by retailers / wholesales that have not
been sold at the end of the accounting period.

Costs classification according to Traceability to Cost Objective

a. Direct costs (traceable; separable) Costs that can be economically traced to a single cost object (1.e.
product, department or unit)

b. Indirect costs Costs that are not directly or easily traceable to the cost object
Sunk Costs - Past costs that have been incurred and are irrelevant to a future decision

Opportunity Costs - The value of the best alternative foregone as the result of selecting a different use
of resource or by choosing a particular strategy

Total Product Cost = Direct Materials + Direct Labor + Manufacturing Overhead

3. Prime Cost = Direct Materials + Direct Labor

4. Conversion Cost = Direct Materials + Direct Labor

5. Ending Inventory of Materials = Beginning Inventory of Materials + Purchases – Direct Materials Used
in Production

6. Gross Margin = Sales Revenue – Cost of Goods Sold

7. Operating Income = Gross Margin – Selling and Administrative Expens