Financial accounting and cost accounting are two different types of accounting that are used to track and report the financial performance of a business.
While both financial and cost accounting provide insights into a company’s financial position, there are several key differences between the two.
Financial accounting focuses on the big picture.
Financial accounting is primarily concerned with reporting a company’s financial performance and position to external stakeholders, such as shareholders, creditors, and tax authorities. This accounting type focuses on the big picture and provides a bird’s eye view of a company’s overall financial health.
Cost accounting provides detailed insights.
Unlike financial accounting, cost accounting is focused on providing detailed insights into a company’s costs and expenditures. This information is used internally by managers to make decisions about where to cut costs and how to improve profitability.
Financial accounting is historical.
Financial accounting is a historical record of a company’s financial transactions. This means that it only reports on past data and does not provide any insights into future trends.
Cost accounting is predictive.
Cost accounting uses both historical data and predictive modelling to provide insights into future trends. Managers can use this information to make decisions about where to invest resources and how to price products and services.
Financial accounting is regulated.
Because financial accounting provides information that is used by external stakeholders, it is subject to strict regulation. On the other hand, cost accounting is less regulated since it is primarily used for internal decision-making.
Both financial and cost accounting are important tools that can be used to track and report the financial performance of a business. However, there are several key differences between the two. Financial accounting focuses on the big picture, while cost accounting provides detailed insights. Financial accounting is historical, while cost accounting is predictive. And finally, financial accounting is regulated, while cost accounting is less so.