measurement and recording of business transactions as well as the preparation of general-purpose financial reports that are based on general accepted accounting principles for external parties. MAJOR AREAS OF ACCOUNTING
Management accounting measures and reports
financial and non-financial information that helps managers make decisions to fulfill the goals of an organization. DIFFERENCE BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING COST ACCOUNTING
Cost accounting is a system that records,
summarizes, analyzes, and interprets the details of the cost, materials, labor, and overhead necessary to produce and sell an article. SIMILARITIES BETWEEN FINANCIAL AND COST ACCOUNTING
Uses the same set of financial information.
Same set of rules are equally relevant under financial and cost accounting. RELATIONSHIP BETWEEN FINANCIAL, MANAGEMENT AND COST ACCOUNTING COST OF GOODS SOLD FOR MERCHANDISING COST OF GOODS SOLD FOR MANUFACTURING COST OF GOODS SOLD USES OF COST ACCOUNTING DATA
Product cost determination – cost accounting is
important for inventory valuation, product pricing and managerial decision making Planning and control – thru cost accounting the different plans / budgets are evaluated in relation to cost and benefits PRODUCT COST DETERMINATION
Selling price – the cost should be enough to
cover cost of production, expenses and profit. Meeting competition – the price and cost may be reduced, or product may be eliminated. Bidding on contracts – the price must not be set too high enough to cover cost plus profit Analysing profitability – helps determine the amount of profit and concentrate efforts on more profitable items. PLANNING AND CONTROLLING
Planning is the process of establishing
objectives and goals and determining the means by which the firm will attain them. Controlling is the process of monitoring the company’s operations and determining whether the objectives identified under planning are being achieved. MANUFACTURING COSTS
Direct materials are raw materials used in the
manufacturing process that become a significant part of the finished goods. Direct labor are costs of employees’ wages who directly work with the raw materials in converting them into finished goods. Factory overhead are those other costs that are incurred in the manufacturing of a product that cannot be classified as either direct materials or direct labor. PRIME COST AND CONVERSION COST INVENTORIES IN MANUFACTURING COMPANIES
Raw materials inventory – cost of unused or
unissued direct materials or supplies. Work in process inventory – cost of direct materials used, direct labor and factory overhead that has begun but not yet completed at the end of a period. Finished goods inventory – reflects the cost of goods that have been completed and are ready for sale. COST ACCUMULATION COST SYSTEMS
Job order cost system – applicable to the
production of customer specified products or groups of unique products. Process cost system – applicable to a continuous process of production of the same or homogenous goods.