COST

ACCOUNTI
NG
CONCEPT
Financial Accounting,
Cost Accounting &
Management
Accounting
 Introduction:
Financial Accounting, aims at finding
out profit and loss of an accounting year
as well as asset and liabilities position,
by recording various transaction in a
systematic manner.
Cost Accounting, helps the business to
ascertain the cost of production services
offered by the organisation and also
provide valuable information for taking
various decision and also aur cost
control and cost reduction.
Management Accounting, help the
management to conduct the business in a
more efficient manner.
Relationship between
three forms of
accounting

Fina Cos
ncial t
A/cin A/ci
g
ng

Managem
ent
Accountin
g
 Management Accounting utilizes the
principles and practices of financial
accounting and cost Accounting in
addition to other modern management
techniques for efficient operation of a
company. The main thrust in management
accounting is what data mining policy and
formulating plans to achieve desired
objective of Management.
Financial Accounting

 Introduction
Financial Accounting is defined as, “
Art and science of classifying,
analysing and recording the businsess
transactions in a systematic manner in
order to prepare summary at the end
of the year find out the results of the
concerned accounting year.”
 Terms:
1. Business transactions
2. Classification of transactions
3. Recording of transactions
4. Summary of transactions
Concepts of Financial
Accounting

 Separate entity
 Double entry
 Money measurement Concept
 Going concern concept
 Matching concept
Accounting cycle

 Transaction
 Entry
 Books of prime entry - Journal
and subsidiary books.
 Postingin ledger – Book of
secondary entry.
 Trial balance
 Finalaccounts – Profit and loss
account and Balance sheet.
Cost accounting

 Cost : Cost can be defined as the

expenditure (actual or notional) incurred
on or attributable to a given thing. It can
also be described as a resources that
have been sacrificed on must be
sacrificed to attain a particular objective.
 Costing : Costing may be defined as the
technique and process of ascertaining
cost. According to Wheldon, Costing is
classifying, recording, allocation and
appropriation of expenses for the
determination of cost of product or
services and for the presentation of
suitably arranged data for the purpose
of control and guidance of
Management.
 Cost Accounting
 Cost Accountancy
 Cost Accounting: Cost accounting
primarily deals with:
1. Collection
2. Analysis of relevant off cost data for
interpretation.
3. Presentation for various problems of
Management.
Cost accounting acoounts for the cost of
products service or an operation. It is
defined as, “the establishment of of budgets,
standard costs and actual costs of
operations, processes, activities or product
and the analysis of variances, profitability or
the social use of funds.”
 Cost Accountancy: It is defined as “the
application of costing and cost accounting
principles, methods and techniques to
the science and art and practice of cost
control and the ascertainment of
profitability as well as presentation of
information for the purpose of managerial
decision making.”
Objectives of Cost
Accounting

1. To ascertain the cost of production on

per unit basis. For example, cost per
kg, cost per meter, cost per liter, cost
per ton etc.
2. Cost Accounting helps in the
determination of selling price.
3. Cost accounting helps in cost control
and cost reduction.
4. Ascertainment of division wise, activity
wise and unit wise profitability becomes
possible through cost accounting.
5. Cost accounting helps in locating
wastages, inefficiencies and other
loopholes in the production
processes/services offered.
6. Cost accounting helps in presentation
of relevant data to the management
which helps in decision making.
7. Cost accounting also helps in
estimation of cost for the future.
Essentials of a good
Costing System
1. Costing System adopted in any organisation
should be suitable to its nature and size of
the business and it’s information needs.
2. A costing system should be such that it is
economical and the benefits derived from
the same be more than the cost of operating
of the same.
3. Costing System should be simple to operate
and understand.
4. Costing System should ensure proper system
of accounting for material, labour and
overheads and there should be proper
classification made at the time of recording
of the transaction itself.
5. Before designing a costing system, need and
objectives of the system should be
identified.
6. The costing system should ensure that the
final aim of ascertaining of cost as
accurately possible should be achieved.