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Difference between Financial Accounting and Cost Accounting – CS Executive

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What is the difference between Financial accounting and Cost accounting – CS Executive

Welcome to Takshila Learning, the leading CS online classes provider, we are dedicatedly engaged in helping you in your CS preparation.

Today from our CS Executive online classes segment, we have chosen the topic ‘Differences between Financial Accounting & Cost Accounting’ from Cost and Management accounting.

Difference between Financial accounting and Cost accounting

  • Scope: Financial accounting covers the book-keeping & summarizing of all financial transactions according to Money Measurement Concept.While in Cost accounting, covers calculation of the Cost of producing or selling a product, or rendering a service.
  • Reporting: In Financial accounting, reporting is done to both internal & external users. However, in Cost accounting, there are only internal users as it is an internal management matter.

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  • Statutory Requirement: Financial accounting is mandatory under Companies Act,2013 & under Section 44AA of Income Tax Act,1961. But maintenance of Cost accounts is not mandatory rather voluntary by Manufacturing Industries. However, some specified industries may be ordered to maintain records.
  • Periodicity: Financial accounting has a periodicity concept; accounts are prepared at period ends, say yearly. However, Costing is done regularly as per the requirements of the Industry.
  • Purpose: Financial accounting is done to report Profit/Loss (through P&L account) &financial position (through Balance Sheet) to the Stakeholders of business. However, Cost accounting is done to provide useful information to the management for correct & timely decision-making.

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  • Financial Items: There are some expenses & incomes which are pure financial in nature. They are dealt in Cost, but these expenses and incomes have nothing to do with the production & selling of a product. Example: Cash Discount, Goodwill written off,Provisions,Donations,Penalties,etc.
  • Pure Costing Items: Costing includes the imputed costs which are not paid out-of-pocket. We can also say them the Opportunity Costs. Example: loss of contribution/profit,but Financial accounting does not take the opportunity costs into account.
  • Different Treatments: Valuation of Stock may vary in Financial accounting & Cost accounting. As the expenses( technically called as overheads in Costing) are recorded on an accrual basis in Financial accounting and on absorption basis in Cost accounting.

Because of these differences, profits/losses tend to differ in Financial accounting and Cost accounting. Hence, reconciliation is needed between the two which will be discussed later.


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