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Cost accounting is defined as “a technique or method for determining the cost of a project, process, or thing. This cost is determined by direct measurement, arbitrary assignment, or systematic and rational allocation.”
The appropriate method of determining cost depends on the circumstances that generate the need for information. Central to a cost accounting system is the process for tracing various input costs to an organization’s outputs. This process uses the traditional accounting form of record keeping—general and subsidiary ledger accounts. Accounts containing cost and management accounting information include those dealing with sales, procurement, production and inventory, personnel, payroll, delivery, financing, and funds management.
Not all cost information is reproduced on the financial statements, correspondingly, not all financial accounting information is useful to managers in performing their daily functions. Cost accounting creates an overlap between financial accounting and management accounting. Cost accounting integrates with financial accounting by providing product costing information for financial statements and with managementaccounting by providing some of the quantitative, cost-based information managers need to perform their tasks.
The appropriate method of determining cost depends on the circumstances that generate the need for information. Central to a cost accounting system is the process for tracing various input costs to an organization’s outputs. This process uses the traditional accounting form of record keeping—general and subsidiary ledger accounts. Accounts containing cost and management accounting information include those dealing with sales, procurement, production and inventory, personnel, payroll, delivery, financing, and funds management.
Not all cost information is reproduced on the financial statements, correspondingly, not all financial accounting information is useful to managers in performing their daily functions. Cost accounting creates an overlap between financial accounting and management accounting. Cost accounting integrates with financial accounting by providing product costing information for financial statements and with managementaccounting by providing some of the quantitative, cost-based information managers need to perform their tasks.
The cost accounting overlap causes the financial and management accounting systems to articulate or be joined together to form an informational network. Because these two systems articulate, accountants must understand how cost accounting provides costs for financial statements and supports management information needs. Organizations that do not manufacture products may not require elaborate cost accounting systems. However, even service companies need to understand how much their services cost so that they can determine whether it is cost-effective to be engaged in particular business activities.
