lOMoARcPSD|25448604
Introduction
In todays business world, business entities are functioning in a highly competitive environment
with high degree of risk and uncertainty. Consequently, they are required to function more
efficiently and effectively and thereby able to offer their products at a comparatively lower
price. In order to get a competitive advantage in the industry, business organizations need to
adopt three strategic dimensions, and ‘cost leadership’ is one among them (other dimensions
are product differentiation and focus or niche). Cost leadership implies producing goods or
provision of services at lowest cost while maintaining quality to have better competitive price.
So, it is essential for business organizations to have a robust costing system. Information is the
key resource for business decision making. Cost accounting provide a comprehensive cost and
revenue evaluation report to the management for appropriate decision making.
Accounting information’s required for a business entity is classified in to three categories;
Financial
Accounting
Accounting Cost Accounting
Management
Accounting
Financial Accounting: Concerned with recording of business transactions in the books of
accounts for the purpose of preparing the final accounts. The objective of financial accounting
is to present a true and fair view of company’s income and financial position at regular intervals
of one year.
In spite of new accounting device, improved techniques and eloborative subsidiary records,
financial accounting is limited with regard to information requirements of various stake
holders, such limitations of financial accounting led to the development of cost accounting.
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
, lOMoARcPSD|25448604
Such limitations are as follows;
• Reveals only overall performance : The approach of financial accounting is totalitarian
in nature and therefore, it does not make any attempt to evaluate the performance, more
particularly the cost effectiveness of departments, processes, products, functions, sales
territories etc., which is essential for cost control and to improve the segmental and
overall performance.
• Historical in nature: Financial accounting is basically a post-mortem excersise. Which
means, it summerizes the data and ascertain the results and financial position only after
the completion of the accounting period. Hence, there is no scope for taking timely
action.
• Comparison of performance not made: Under Financial accounting, no norms/standards
agaist which actual cost and performnce can be compared are developed.
• No cost control, no classificaiton of cost and no analysis of losses
However, the importance and utility of financial accounting system cannot be underrated. It
may be noted that cost accounting is not a substitute for fiancial accounting.
Cost, Costing, Cost Accounting and Cost Accountancy – Meaning and
Definitions
Cost: The amount of expenditure (actual or notional) incurred on or attributable to a specified
article, product or activity.
Costing: The technique and process of ascertaining cost of products and services.
Cost Accounting: Coast accounting is a broader term than costing, though both ascertain cost.
Cost accounting as the boady of concepts, methods and procedures used to measure, analyse
or estimate costs, profitability,and the performance of individual products, departments and
other segements of a company’s operations, for either internal or external use or both, and
report to the interested parties.
Cost Accounting = Costing (by formal mechanism) + Application of cost control methods +
Assessment of profitability
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
Introduction
In todays business world, business entities are functioning in a highly competitive environment
with high degree of risk and uncertainty. Consequently, they are required to function more
efficiently and effectively and thereby able to offer their products at a comparatively lower
price. In order to get a competitive advantage in the industry, business organizations need to
adopt three strategic dimensions, and ‘cost leadership’ is one among them (other dimensions
are product differentiation and focus or niche). Cost leadership implies producing goods or
provision of services at lowest cost while maintaining quality to have better competitive price.
So, it is essential for business organizations to have a robust costing system. Information is the
key resource for business decision making. Cost accounting provide a comprehensive cost and
revenue evaluation report to the management for appropriate decision making.
Accounting information’s required for a business entity is classified in to three categories;
Financial
Accounting
Accounting Cost Accounting
Management
Accounting
Financial Accounting: Concerned with recording of business transactions in the books of
accounts for the purpose of preparing the final accounts. The objective of financial accounting
is to present a true and fair view of company’s income and financial position at regular intervals
of one year.
In spite of new accounting device, improved techniques and eloborative subsidiary records,
financial accounting is limited with regard to information requirements of various stake
holders, such limitations of financial accounting led to the development of cost accounting.
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
, lOMoARcPSD|25448604
Such limitations are as follows;
• Reveals only overall performance : The approach of financial accounting is totalitarian
in nature and therefore, it does not make any attempt to evaluate the performance, more
particularly the cost effectiveness of departments, processes, products, functions, sales
territories etc., which is essential for cost control and to improve the segmental and
overall performance.
• Historical in nature: Financial accounting is basically a post-mortem excersise. Which
means, it summerizes the data and ascertain the results and financial position only after
the completion of the accounting period. Hence, there is no scope for taking timely
action.
• Comparison of performance not made: Under Financial accounting, no norms/standards
agaist which actual cost and performnce can be compared are developed.
• No cost control, no classificaiton of cost and no analysis of losses
However, the importance and utility of financial accounting system cannot be underrated. It
may be noted that cost accounting is not a substitute for fiancial accounting.
Cost, Costing, Cost Accounting and Cost Accountancy – Meaning and
Definitions
Cost: The amount of expenditure (actual or notional) incurred on or attributable to a specified
article, product or activity.
Costing: The technique and process of ascertaining cost of products and services.
Cost Accounting: Coast accounting is a broader term than costing, though both ascertain cost.
Cost accounting as the boady of concepts, methods and procedures used to measure, analyse
or estimate costs, profitability,and the performance of individual products, departments and
other segements of a company’s operations, for either internal or external use or both, and
report to the interested parties.
Cost Accounting = Costing (by formal mechanism) + Application of cost control methods +
Assessment of profitability
Cost Accounting
Jerlin Jose, Asst. Professor, CHRIST (Deemed to be University)
Bengaluru
Downloaded by Nikee Patel ()
