Difference between financial accounting and cost accounting
Financial Accounting
Financial accounting focuses on the collection, recording and analysis of financial information of a company with the objective of complying with legal and tax obligations, and so that investors, shareholders and other interested parties can make informed decisions based on the financial statements.
Financial accounting is governed by generally accepted accounting principles (GAAP) and is focused on the presentation of financial statements (Statement of financial position, Statement of income and Cash Flow Statement), which reflect the financial situation of the company at a given time and its financial performance over time.
Cost accounting
Cost accounting, also known as management accounting, aims to collect, record and analyze information related to a company's production costs, in order to make informed decisions for the management of the company.
Cost accounting focuses on the collection of production cost data and its subsequent analysis to determine the unit production cost and the total production cost, which allows the company to have better control over its costs and be able to adjust its prices and production strategies to maximize its benefits.
Differences between both accounts
- Financial accounting focuses on the presentation of financial statements to inform investors and shareholders, while cost accounting focuses on collecting cost information for the internal management of the company.
- Financial accounting is based on GAAP, while cost accounting does not follow specific accounting principles.
- Financial accounting focuses on historical facts, while cost accounting focuses on the present and future to make informed decisions.
- The users of financial information are external, while the users of cost information are internal.
In summary, both financial accounting and cost accounting are important for business management. While financial accounting focuses on the presentation of the financial situation and performance of a company, cost accounting focuses on the internal management of production costs to maximize profits and make informed decisions for the company.
It is important that companies understand the difference between both accountings and use them effectively to achieve your business objectives.