Difference Between Financial Accounting and Cost Accounting

Primary Difference

In broader terms, the process of accounting deals with keeping detailed records and predicting the economic nature of business. It gives the assurance that all the actions going on in a company are correct and according to the requirement. There are many terms used in it, and two of them are known as Financial Accounting and Cost Accounting. The primary difference in both of them is that financial accounting is the first step in any company while cost accounting is the second phase of that process. Cost accounting cannot take place without a proper financial audit conducted. First of all, defining bot the terms will help in developing a good understanding. 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. Financial accounting is different in a way that it records all the activities going on including the money transactions which help in developing statements that are presented to the management to help them while taking individual decisions. We can say 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. While financial accounting goes in detail to keep all the factors insight and does not always depend on just the figures which are presented. It deals with the bulk of data in different forms and does not only cater the small chunks. Cost accounting is to make sure all the costs are managed while financial accounting deals with the aim that correct assessment of a company is shown so that better arrangements can be made to make the position even better. Therefore, it does not estimate or guess anything but only takes into account the factual data. 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.

Comparison Chart

Financial AccountingCost Accounting
DefinitionCan be defined as the action which helps in keeping the total record of all the money related activities going on in a company.To help the management in making decisions based on money for which quantitative data is used.
ScopeCan include information from journals, pay slips, some people working, total sales made and anything that has some kind of figure involved.Since all the information is in the terms of money or figures which are essential in determining the future of a company regarding spending.
BasisIt is the basis of cost accounting.cannot lead to financial accounting
AimTo record all the transactions taking place in the company so that statements can be made.Controlling the money being spent is the main aim.

Definition of Financial Accounting

Financial accounting can be defined as the action which helps in keeping the total record of all the money related activities going on in a company. These can include information from journals, pay slips, some people working, total sales made and anything that has some kind of figure involved. It is carried out at the end of every year and is the first step of accounting which is followed by cost and management accounting. They keep records of the transactions which help in developing the financial statements which are provided to the management to maintain a check and make the right decisions under the circumstances.

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.

Differences in a Nutshell

  1. The primary function of cost accounting is to help the management in making decisions based on money while the central role of financial accounting is to calculate the value of each service which goes on in an organization so that accurate decisions can be made.
  2. Financial accounting is the first step while cost accounting in the next phase in any business model.
  3. Cost accounting cannot lead to financial accounting, but financial accounting is the basis of cost accounting.
  4. Controlling the money being spent is the main aim of cost accounting while the primary purpose of financial accounting is to record all the transactions taking place in the company so that statements can be made.
  5. Actual costs and real factors are kept in mind while a financial accounting procedure is going on, but estimations and guesses are made in a cost accounting process.
  6. Both of these use quantitative and qualitative data.
  7. Controlling the money being spent is the main aim of cost accounting while the primary purpose of financial accounting is to record all the transactions taking place in the company so that statements can be made.
  8. In financial accounting, it is important that all the values are updated and correct to the last limit while in cost accounting some errors are fine since it is based on estimation.
  9. Data available in cost accounting usually gives an insight of future while the data accessible in financial accounting helps in knowing the current situation.
  10. Reports which are produced in cost accounting and financial accounting are helpful for various entities of the same type.
  11. Financial accounting is done at the end of the year while cost accounting can be done after a particular period of time specified by the company.
  12. Cost accounting calculates the detailed values regarding money while financial accounting calculates the broader monetary range.
  13. Financial accounting is carried out with the help of wide range of material such as journals, accounts, and statements while cost accounting is done with the aid of sales, prices, and some other materials.

Conclusion

There are many forms of activities that can be carried out in a business field and the two terms that have been explained here are similar, people who want to carry out their businesses and the ones who want to explore the commerce side more will find this article really helpful and get to know the differences between them.

Harlon Moss

Harlon currently works as a quality moderator and content writer for Difference Wiki. He graduated from the University of California in 2010 with a degree in Computer Science. Follow him on Twitter @HarlonMoss

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