Accounting is the process of keeping detailed records, categorizing and predicting the economic nature of business. It deals with making sure all the accounts of a company are maintained and updated regularly, and all the transactions that take place are smooth. It is a vast subject which covers different topics, some of these are widely used, and two of them are known as Cost Accounting and Management Accounting. The basic definition of the subsequent terms helps in developing a basic understanding of what they are. Cost accounting is a process in which accounts are managed with the aid of data which is received from financial accounting, this is done at the end of every cycle of finance according to a company. Management accounting is different in a way that it gets all the information from cost accounting and financial accounting and then prepares a proper report which is then forwarded to the management for analysis. It can be said that the main aim of cost accounting is to provide information related to costs so that they can be managed according to the budget and decisions can be taken accordingly. On the other hand, the primary role of management accounting is to give detailed information on all the factors such as planning and decision taking along with how the processes go on in the company so that everything can be analyzed and decisions can be made according to these factors. Since it is related to cost, cost accounting only deals with the data in quantitative terms and everything is in the form of money. On the flipside, quantitative and qualitative data are considered in management accounting, along with the data which is not always in the form of figures. The primary function of cost accounting is to make sure all the costs are managed while the role of management accounting is more than just that. It deals with the performance and efficiency, that how things can be made better and more work can be done in shorter time and by spending less money. It can also be said that cost accounting system does not depend on management accounting, but the latter one does rely on the first one along with the financial accounting. Some of the other factors related to this will be discussed in the next couple of paragraphs and differences, in a nutshell, be given at the end.
Definition of Cost Accounting
The primary function of cost accounting is to help the management in making decisions based on money for which quantitative data is used since all the information is in the terms of money or figures which are essential in determining the future of a company regarding spending. It helps the management to take decisions based on where to spend less money or factors like investing at a right place. It can, therefore, be said that controlling the money being spent is the main aim of cost accounting. Also, it takes the data from financial accounting which gives a detailed overview of all the accounts. Another factor that has to be considered is that cost accounting helps in providing insight into the future and does not deal with past events. It always has an eye on how improvements can be made in the current system.
Definition of Management Accounting
The central role of management accounting is to inform the management of all the functions in the company including planning, working and performance. It has a wider range of factors which have to be considered and does not only provide information in monetary terms. Reports which are prepared for the management help them in finding out how the company is being run, what changes can be made, what has been the progress. That is to say that it gives detailed information about the past and current events so that better answers can be found in future. Both quantitative and qualitative data is utilized in management accounting and even the data which does not have any figures or just has text are used to make sure no aspect is missed. It can be said that in a way, management accounting depends on cost accounting for at least the money matters.
Differences in a Nutshell
- The primary function of cost accounting is to help the management in making decisions based on money while the central role of management accounting is to inform the management of all the functions in the company including planning, working and performance.
- Quantitative data is used in the cost accounting while both quantitative and qualitative data is utilized in management accounting.
- Controlling the money being spent is the main aim of cost accounting while the primary purpose of management accounting is to manage the all the factors.
- Cost accounting takes the data from financial accounting, but management accounting takes the data from both cost and financial accounting.
- Cost accounting does not depend on management accounting, but management accounting does depend on cost accounting.
- Data available in cost accounting usually gives an insight of future while the data accessible in management accounting reflects both the current and past decisions.
- Reports which are produced in cost accounting are helpful for various entities while the reports of management accounting are useful for the relevant people only.
- Basic principles are used in cost accounting while advanced principles are used in management accounting.
- There are proper audits carried out in cost accounting, but there is no need for statutory audit reports.
All in all, this article has explained the main points that help in understanding what both the terms mean and then gives the main differences between them. Mostly people who do not relate to the field find it difficult to know about the terms but hopefully, after reading the article it won’t be the case.