Question

1.Define, in your own words, financial accounting and cost accounting.
2. Explain and give examples of the similarities and differences in both.
accounting.

Answer 1

Financial accounting is the recording of all the monetary transactions of an organization.Further, it records and reports these financial data in proper formats that ensure uniformity in the industry/economy.

For example, financial accounting reports final accounts (profit and loss, balance sheet etc) in the given format only.The purpose is to ascertain the financial position of the firm on a given date and the profitability of the firm in a given period.

The users of these financial statements are the stakeholders of the firm, both internal and external. These include the management, owners, investor, creditors, government etc

.

Cost accounting is the process that records, summarizes and reports cost information of an organization.The primary function of cost accounting is to ascertain the costs of the firm and perform the functions of cost control.It traces the costs of every unit in production right from the input of raw materials to the output produced.

Cost accounting aides management in important decisions such as fixing the selling price, controlling costs, efficiency measurement and improvement, projecting plans, making budgets etc.It also adds effectiveness to financial accounting by providing useful cost information.

Cost Accounting refers to that branch of accounting which deals with costs incurred in the production of units of an organization. On the other hand, financial accounting refers to the accounting concerned with recording financial data of an organization, in order to exhibit exact position of the business.