Cost Accounting Importance In Addition To Advantages Of Terms Accounting

what is Cost accounting?
Cost accounting Importance too advantages of cost accounting

Concepts of cost accounting

Cost accounting is a branch of accounting that has evolved to overcome the limitations of financial accounting. It is the physical care for of accounting for cost, which is concerned to a greater extent than amongst the ascertainment, allocation, distribution too accounting aspects of cost. It is that branch of accounting, which deals amongst the classification, recording, allocation, addition too reporting of electrical flow too prospective costs. Actually, it is the formal machinery past times agency of which of products too services are ascertained too controlled.

It is an internal reporting systems that aims to assist the administration for planning too decision-making it primary emphasizes on cost too deals amongst collection, analysis, interpretation too prospective for managerial determination making on diverse work concern problems.

Cost accounting is to a greater extent than concerned amongst short-tem planning too its reporting menses is much losses that financial accounting. It deals amongst historic information but is also futuristic inwards approach. Cost accounting systems cannot endure installed without proper financial accounting systems. Each scheme tin prepare a costing systems best suited to its private needs. In financial accounting the major emphasis is inwards cost classification based on types of transaction e.g., salaries, repairs, insurance, stores etc. but inwards cost accounting, the emphasis is set on functions, activities, processes too on internal planning too command too information needs of the organization.

Similarly, according to national association of accountants USA'

From the higher upward information definition, it tin endure concluded that cost accounting is accounting for cost aimed at providing cost data, statements too reports for the purposes to assists the managements inwards planning determination making too controlling.

Objective too share of cost accounting

The primary objective too share of cost accounting are mentioned below:

1. To ascertain cost: the primary objective of cost accounting is to ascertain the cost of goods too services. The expenses that are incurred piece producing goods or rendering services are called costs. Some examples of costs are material, labor too other straight too indirect expenses. Under cost accounting, cost are collected, classified too analyzed amongst the aim of finding out the total as good as per unit of measurement cost of goods, services, processes, contract etc.

2. To analyses cost too loss: to a greater extent than or less other objective of cost accounting is to analyze the cost of each activity. The analysis of cost is necessary to form the cost into controllable or uncontrollable, relevant or irreverent, profitable or unprofitable etc. similarly, nether cost accounting the effects of material, idle time, breakdown or harm of machine on the cost is also analyzed.

3. To command cost: cost command is a technique that is used to minimize the cost of production too services without compromising on the quality. Cost accounting aims at controlling the cost past times using diverse techniques, such as touchstone costing too budgetary control.

4. To aid inwards fixation of selling price: to a greater extent than or less other of import objective of cost accounting is to aid inwards fixation of selling prices. The costs are accumulated, classified too analyzed to ascertain cost per unit. The selling cost per unit of measurement is calculated past times adding a surely net income on the cost per units. Under cost accounting, dissimilar techniques such as project costing, batch costing, output costing services costing etc are used for determine the selling price.

5. To assistance the management: cost accounting aims at assisting the administration inwards planning too its importations past times providing necessary costing information that also enable the evaluation of the past times activities as good as futurity planning.

Importance too advantages of cost accounting

The importance too advance of cost accounting are presented below:

1. Helps inwards controlling cost: cost accounting helps inwards controlling cost past times applying to a greater extent than or less techniques such as touchstone costing too budgetary control.

2. Provides necessary cost information: it provides necessary cost information to the administration for planning, implements too controlling.

3. Ascertains the total per unit of measurement cost of production: it ascertains the total too per unit of measurement cost of production of goods too services that helps to produce the selling prices as well.

4. Introduces cost reduction programs: it helps to innovate too implement dissimilar cost reduction programs.

5. Discloses the profitable too non profitable activities: it discloses the profitable too non profitable activities that enable administration to determine to eliminate or command unprofitable activities too expand or prepare the profitable activities.

6. Provides information for the comparing of cost: it provides reliable information too information which enable the comparing of cost betwixt periods, mass of output, determent too processes.

7. Checks the accuracy of financial accounts: it helps checking the accuracy of financial accounts. This is done past times preparing cost reconciliation statement.

8. Helps invests too financial institutions: it is also advantageous to investment too financial institutions since it discloses the profitability too financial seat inwards which they intend to invest.

9. Beneficial to workers: it is beneficial to workers as good since it emphasizes the efficient utilization of labor too scientific systems of reward payment.

Differences betwixt financial too cost accounting

Cost accounting Importance too advantages of cost accounting Cost accounting Importance too advantages of cost accounting

Limitations of cost accounting

Besides a number of advantages, cost accounting sufferers from a number of limitations. Some of them are mentioned below:

1. Lack of uniformity: cost accounting lacks a uniform procedure. It is possible that 2 as competent cost accountants may brand it at dissimilar results from the same information. Keeping this limitation inwards view, all cost accounting results tin endure as mere estimates.

2. Conceptual diversity: at that spot are a large number of conventions too flexible factors such as classification of cost into its elements, number materials on average or standards price, apportionment of overhead expenses, arbitrary allotment of articulation costs, sectionalisation of overhead into fixed too diverse too variable costs, sectionalisation of cost into normal too abnormal too controllable too non-controllable too adoption of marginal too touchstone costs due to which it becomes hard to conduct hold exact costs. In which a contacts, the reliable of cost accounting mightiness endure low.

3. Costly: at that spot are many formalities which are to endure observed past times a pocket-size too medium size concerned due to which the establishment too running costs are too so much that it becomes hard for their concerned to afford us cost. Thus it tin endure used entirely past times large concerned.

4. Ignorance of futuristic situation: the contribution of cost accounting for heading futures province of affairs has non been much for example, it is has non evolved too so far whatsoever tool for heading inflation situation.

5. Lack of double entry systems: nether cost accounting. Influenza A virus subtype H5N1 double entry scheme is non adopted that does non enable to checks the arithmetic's accuracy of the transaction too locate the errors.

6. Developing stage: cost accounting is to evolution phase since its regulation concepts too conversions are non fully developed.

Cost accounting vs. cost accountancy

The term cost accountancy is wider that the term cost accounting. According to the terminology of administration too financial accountancy published past times the chartered institute of administration accounts (CIMA), London, cost accounting means, "the application of costing too cost accounting regulation of methods too techniques to the scientific discipline of fine art too practices of cost control. It include the prostration of information derived at that spot shape for the purpose of administration decision-making." Cost accounting is hence the scientific discipline fine art too particle of cost accountants. It is a scientific discipline because it consist of organized or systematic knowledge, which a cost accountant's cognition should non rest restricted entirely to such subjects which cost accountancy embraces but it should extended to such subjects which cost economics, production control, operations interrogation which volition aid him inwards application of his cost accountancy cognition to the problems of the business.

Cost accountancy is also an fine art because it involves costing technique too methods, such as those of dissimilar costing, too touchstone costing etc. the application of these techniques helps the cost accountants inwards deciding how to command costs, whether to choke for replacement of the existing plants past times a novel i or non etc.

Cost accounting is also the particle of cost account's because he has to brand constants efforts inwards the champaign of cost accountancy. He has to Endeavor constantly for reducing cost, introduce cost information inwards a condensed but information way to the managements too so that managements may accept proper actions at the opportune time.

Cost accounting comprises of several areas. They are as follows:

1. Cost accounting: cost accounting is the physical care for of accounting for costs. It embraces the accounting procedures relating to recording of all incomes too expenditures too the grooming of periodical statements too reports amongst the object of ascertaining too controlling costs. It is hence the formal machinery past times agency of agency of which costs of productions or services are ascertained too controlled.

2. Costing: according to CIMA, London, "costing is the techniques too physical care for of ascertaining cost." Cost accounting is dissimilar from costing inwards the feel that the quondam provides entirely the footing too information f or ascertainment of costs. Once the information is made available, the costing tin endure carried out ascertainment of costs. Once the information is made available, the costing tin endure carried out arithmetically, past times agency of memorandum statements or past times methods of integrals accounting.

Wheldon has given an exhaustive Definition of costing afterward expanding the ides contained inwards the definitions of the terms, "costing" too 'costing accounting'. According to him costing is "the classification recording too appropriate allotment of expenditures for the determination of the costs of products or services the relation of these costs to sales values too the ascertainments of profitability.

3. Cost control: a cost accountants at i time is non entirely concerned amongst the ascertainment of cost too fixing selling prices of the products but also amongst furnishing such information as to enable the administration to command the operating costs of the business. As a affair of facts, the latter share has choke the prime number share of the cost accounts of these days.

According to the institute of cost works accounting of India, cost command means. " the human activity of powerfulness of controlling or regarding or dominating or controlling costs through the application of administration tools too techniques to the performance of whatsoever functioning to to a greater extent than predetermined objectives of quality, quantity, values too fourth dimension at an options outlay."

Cost command is exercised past times a verity of techniques such as those costing, budgetary command too character command etc. submission of periodical reports past times the cost according also helps managements inwards exercising meliorate command over costs. For example, a tilt of value of stocks raw materials, finished goods whatsoever work-in-progress on mitt together amongst relevant rations volition present whether at that spot is whatsoever trenchancy of over or under-stocking.

4. Cost reduction: this is a novel dimension to the share of cost accountants. In this era of liberalization too contest entirely these volition service who tin deliver character goods too services at to the lowest degree cost. Thus, it needs constant interrogation too developments inwards the areas of production pattern production procedures etc.

5. Cost audit: according to CIMA, London "cost audit is the verification of cost accounts too depository financial establishment check on the adherence to the cost accounting plan."Thus, cost audit involves checking upward the arithmetical accuracy of cost accounts too verification whether the regulation set downward has been followed or not. It because essential inwards cost of a work concern where cost according is carried out on a large scale.

Read More....

Cost Accounting Importance In Addition To Advantages Of Terms Accounting

1 Response to "Cost Accounting Importance In Addition To Advantages Of Terms Accounting"