Cost and Management

Accounting
BBA - Sem V
INTRODUCTION TO COST
ACCOUNTING
 Outcomes
• Understand the meaning of cost accounting
• Able to differentiate financial accounting and
cost accounting
• Appreciate the objectives of cost and financial
accounting
 Cost
• Cost means price
• Amount of expenditure incurred on or attributable to a
given thing
• Expected cost of a particular action
• The cost of something purchased
• Business cost represents the value of economic resources
that are sacrificed to obtain more desirable resources
 Financial Accounting
The art of recording, classifying and summarizing in
a significant manner and in terms of money,
transactions and events which in, part at least of a
financial character and interpreting the results
thereof.
 CONTD...

• Cost Accounting is a branch of accounting

• Developed by limitations of financial accounting.
• The major functions of business are Finance, administration,
Production and Distribution
Limitations of Financial Accounting
• No clear idea of operating efficiency
• Weakness not spotted out by collective results
• Not helpful in the price fixation
• No classification of expenses and accounts
• No data for comparison and decision making
 Cost Accounting
• Cost accounting is the application of accounting and costing
principles, methods and techniques in the ascertainment of
cost and the analysis of saving/or excess cost incurred as
compared with previous experience or with standards.
 Objectives of cost accounting
• Analysis and Ascertainment of costs

• Presentation of cost for cost reduction and cost control

• Planning and Decision making

 Features of Cost Accounting
• It is a process of accounting for cost
• It records income and expenditure relating to procedures of
goods and services
• It provides statistical data on the basis of which future
estimates are prepared
• It is concerned with cost ascertainments, cost control and cost
reduction
• It establishes budgets and standards so that actual cost may
be compared to find out deviations or variances
 Management Accounting
• Management Accounting is the application of appropriate
techniques and concepts in processing historical and
projected economic data of an entity to assist management in
establishing plans for reasonable economic objectives in the
making of rational decisions with a view towards these
objectives”.
Objectives of Management Accounting
• Planning and policy formulation
• Helpful in controlling performance
• Helpful in organizing
• Helpful in interpreting financial information
• Helpful in making decisions
• Reporting to management
• Helpful in tax administration.
 MCQS
1. Financial Accounting deals with
a) Determination of costs
b) Determination of profits
c) Determination of prices
 contd....
2. Financial Accounts record only
a) Actual Figures
b) Budgeted Figures
c) Standard Figures
d) None of the above
 contd...
3.Management Accounting Relates to
a) Recording of accounting data
b) Recording of costing data
c) Presentation of accounting data
d) All the above
 True or False
4.Cost accounting helps in the ascertainment of
cost.

5. Cost accounts provide information for

ascertaining the financial position as on a
particular date.