cost-accounting-and-financial-accounting

Difference between cost accounting and financial accounting

Companies mainly use two types of accounting: financial accounting and cost accounting. Both have a very high importance and are very useful in the management of a company.

They present relevant differences between them that we are going to see below, separated in different aspects. We are going to see the differences between cost accounting and financial accounting according to their objective, their users, their periods, their regulation, their unit of measurement and their accuracy.

Objective

First of all, we must know what the objective of each one is.

Cost accounting is aimed at obtaining the cost of products, while financial accounting is aimed at obtaining financial statements that show the assets, financial situation and results of a company.

Users

As we see, they are very different objectives and therefore each accounting system is aimed at different users.

Analyzing costs allows obtaining an internal information system that is only accessible and useful for company personnel.

Instead, the financial statements obtained through financial accounting are intended for reading by internal and external users, such as banks, investors or Public Administrations, who can access them by reading the company’s annual accounts.

Periods

In addition to this, the periods of both accounts are different.

If we think of a balance sheet of a company, it is a “photo” of the financial situation at a specific date (usually December 31) that reflects what has happened during that year or before. That is, it shows past events.

In contrast, cost accounting prevents events that have not occurred and is aimed at future-focused decision making.

Regulation

In terms of regulation we find another important difference.

Financial accounting is mandatory and is regulated by the General Accounting Plan, while cost accounting is voluntary and is not regulated by any regulations.

Accuracy

Given that there are many variables that influence the cost of a product (expenses, manufacturing time, costs of different types, etc.), the information obtained on the cost of a product is not always accurate, it is probably an estimate.

By contrast, financial accounting is the reflection of a company’s actual transactions and therefore has very high accuracy.

Unit of measurement

Finally, we find another difference in the measurement units used.

In cost accounting, a standard measure is not used, but each cost calculation is adapted to the type of product (machine hours per product, cost, hours of labor or units produced can be used, etc. .). Financial accounting is rigid in this regard and presents the information in the monetary unit of each country.

Conclusion

As a summary, we are going to synthesize all the commented information in a table:

Cost accounting Financial Accounting
objective Analyze costs. Know the economic-financial situation of a company
Users Internal. Internal and external.
Periods Any period of time. Future events. 1 year. Past facts.
Regulation Without regulation. Voluntary. PGC. Mandatory.
Accuracy No. Estimates. Yes. Exactly.
Unit of measurement Several. Monetary unit.