Difference Between Cost Accounting and Financial Accounting

In accounting, cost accounting is a branch of accounting that handles costs related to the production of units of a firm. Similarly, financial accounting relates to the accounting involved in recording financial data of a firm, in order to display the accurate position of the business.

To maximize the profit and performance of a business, cost accounting generates data to keep control of operations. Whereas, Financial accounting determines the financial results, to see the assets and liabilities status of the accounting period.  Both the branches of accounting is important for a business and its users. This article will give a clear understanding and pinpoint the major difference between cost accounting and financial accounting in tabular form.
Cost Accounting vs Financial Accounting

What is Cost Accounting?

The meaning of Cost Accounting can be defined as an accounting system that aspires to capture an enterprise’s costs of manufacturing by evaluating the input costs of each step of manufacturing as well as fixed costs, namely, depreciation of capital equipment. Cost accounting will initially compute and document these costs separately, then analyse input outcomes to output or actual outcomes to assist the enterprise’s management in computing financial accomplishment.

The main task of cost accounting is to arrange, record and identify suitable allocation of investment to determine the costs of the goods or services. Present suitable data to control and guide the management, this includes finding out the cost of every shipment, contract, process, service or unit job. It is also related to the cost of selling, production, and distribution.

Therefore, it has the ability to analyse, classify expense of a particular production unit or service, determine the accuracy and give an exact idea on how much cost is required for the material, labour, and other expenses to get control and reduce the cost.

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What is Financial Accounting?

The meaning of Financial Accounting can be defined as a procedure of documenting, encapsulating and reporting the multiple transactions resulting from trading operations over a timeframe. These transactions are compiled in the preparation of financial statements, comprising the income statement, balance sheet and cash flow statement, that record the enterprise’s operating accomplishment over a particular period.

Financial accounting is a specific accounting branch that maintains a company’s financial activities. With the help of regulated guidelines, all the transactions are entered, reviewed, and shown in a financial statement or financial report.

The financial statements are incorporated for external usage because it is given to people who are not the employee of the company. The primary recipients of this statements are owners/stockholders and few moneylenders. In the case of a corporation’s stock that is traded publicly, the financial statements are circulated publicly such as customers, employees, labour organizations, competitors, and investment analysts.

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Top 5 Difference Between Cost Accounting And Financial Accounting

Basis Cost Accounting Financial Accounting


Cost accounting is an accounting system that aspires to capture an enterprises costs of manufacturing by evaluating the input costs of each step of manufacturing as well as fixed costs, such as the depreciation of capital equipment.

Financial accounting is the procedure of documenting, encapsulating and reporting the multiple transactions resulting from trading operations over a timeframe.

Information Documents the data associated with the labour and material which are utilised in the manufacturing procedure. Documents the data that are in monetary terms.
Estimation of Stock At cost Net Realisable value or Cost, which is less between these both factors.
Profit Analysis

Normally, the gains are investigated for a specified job, batch, product and procedure.

Profits, Income and expenditure are investigated together for a specific period of the entire trading concern.

Aim Controlling and reducing cost. Maintaining the complete record of the financial transactions.

Top 5 Objectives of Cost Accounting

Cost accounting is a tool that can determine the accounting and costing methods and procedures to the ascertain the cost. Few objectives are mentioned below:

  1. To determine per unit cost of various goods produced by a business
  2. To present an accurate report of both operation and process cost
  3. To indicate and prepares a report for the wastage costs in terms of raw material, time or money used in machinery
  4. To provide important data and guidelines for determining the cost of manufactured goods or services rendered
  5. To understand the profitability of every commodity produced and inform management about how profits can be maximised

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Top 4 Objectives of Financial Accounting

The financial statements have different purposes and provide information to shareholders and loan creditors to enhance investment interest. Few other objectives are:

  1. Systematic Recording Of Financial Transactions
  2. Revealing The Financial Position Of The Firm
  3.  Ascertaining The Result Of Business Operations
  4. Reporting Past Performance And Future Prospect

What Are The Advantages of Cost Accounting?

Cost accounting is the process of assembling and evaluating information to discover how an organization can maximize its earning and utilise funds. There are various advantages of cost accounting, here are the few key advantages of to consider cost accounting:

  • Cost object analysis- Expenses and revenues can be gathered by cost object, like product line, distribution channel, and by-product to understand which is effective or require additional support.
  • Discovers causes-It discovers problems within a firm and learns the specific cause of the issue, additionally suggests solutions to the management.
  • Trend analysis- It can track a trend line to find the expense surges
  • Determine Cost- It can be used in various level of activity. For instance, if management is looking for a second shift, cost accounting can assume the extra costs linked with the second shift.
  • Capacity-The capacity of a business to encourage improved sales levels can be determined by examining the value of its excess capacity.

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What Are The Advantages of Financial Accounting?

The financial statements principal classifications are revenues, expenses, equity, assets and liabilities.  Few advantages of financial accounting are:

  • Maintenance of Business Record-All the details of the transaction are recorded in the book of account systematically.
  • Preparation of Financial Statements-All the records help the accountant to prepare a financial report of the company and check the financial status.
  • Comparison of Result-The financial statement reflects the profits of the company which can be used to check the previous year financial status.
  • Act as Legal Evidence-It sometimes it acts as evidence for a few cases.
  • Boost Leanders-The statement provides required information to the money lenders so that they raise the loans.
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