Difference between Cost Accounting and Financial Accounting

An accounting system that helps in analysing and recording the costs involved in the production of any product is known as Cost Accounting.

An accounting system that helps in classifying, analysing, summarising, and recording a company’s financial transactions is known as Financial Accounting.

Its objective is to ascertain the cost of production.

Its objective is to create financial statements.

The scope of cost accounting is narrower.

The scope of financial accounting is broader and pervasive.

Cost Accounting focuses on short-term planning and decision-making, typically within the current accounting period.

Financial Accounting takes a long-term perspective and provides a historical record of the organisation’s financial performance over multiple accounting periods.

Cost accounting helps managers make informed decisions about pricing, product mix, and resource allocation.

Financial accounting focuses on reporting a company’s financial performance to external stakeholders.

Cost Accounting is used by the vendors, shareholders, and management of an organisation.

There are both internal (employees, management, etc.) and external (customers, creditors, etc.) users of financial accounting.

Big business houses need to perform a statutory audit of cost accounting.

It is mandatory to prepare the financial statements of a company.

It prepares the reports that are meant for the internal use of management. These reports may be quite detailed and may even show variances developed about the costs, CVP computed through costs, and break-even point.

It prepares standardized financial statements like income statements, balance sheets, and cash flow statements. These reports follow a prescribed format and are distributed to external stakeholders.

Historical information is used as the basis of decision-making. It helps with short-term operational decisions.

Here also, historical information is used as the basis of decision-making. It provides information for long-term strategic decisions.

It is not bound by strict regulations like GAAP or IFRS. Companies have more flexibility in cost accounting methods.

Must adhere to established accounting standards like GAAP and IFRS to ensure the accuracy and consistency of financial statements.