Cost Accounting Vs. Managerial Accounting

Business firms and entities exist to derive profit. When it comes to profit, accounting becomes an integral part of business. Accounting in a broad sense involves summation, estimation, forecasting and analysis of financial transactions. Accounting as an academia and even practice can be divided into several aspects such as cost accounting, regular financial accounting or even managerial accounting. All these are known as systems or types of accounting and are of different nature and have different objectives. There is a very thin differentiating line between such systems of accounting and often very similar formulas, statements and mechanisms are also used. In simple words, the difference between these systems of accounting is the process and its objective, the fundamentals remain the same. These accounting systems are also included in GAAP.

Meaning and Definition

Having a look at the definitions of the two definitions will certainly help. It must be noted that both these systems of techniques of accounting are based upon the basics of fundamental financial accounting system. As aforementioned the objective of the system differs. The objective is thus also stated presented.

• Cost Accounting: Cost accounting which is sometimes also referred to as cost method of accounting, involves the forecasting the per unit cost of a good or service. The per unit cost derivation is not restricted to one unit of goods, but is also used to compute the expenditure of running one line of production, calculation of materials consumed by one machine, etc. The different expenditures that are involved in production per every unit, are computed.
• Managerial Accounting: Managerial accounting is the recording, regeneration, planning and analysis of incomes and expenditures. It is basically a financial management function. Managerial accounting is done to provide a certain logical money-based mathematics to managerial decisions. Managerial accounting thus involves comparison, analysis and business logic to process information regarding transactions.

From the point of view of practical hierarchy, cost accounting is considered to be a part of managerial accounting. Cost and managerial accounting unlike financial are more analytical in nature and are internal accounting systems and are not usually disclosed to the public.

What is the Difference Between Managerial Accounting and Cost Accounting?

In the following points of differentiation, a standard example of steel mills has been used. Steel output is measured in tones.

Practically speaking cost accounting involves computation of cost per unit with different angles. For example cost accounting in a steel mill will principally involve the computation of cost of one tone of steel. For this a foreman's salary that contributed to the production of that tone of steel is computed. The coke, power, workman's salary, premises and factory machinery cost, are some other items that are adding to prime costs (cost of raw material which in this case is iron and other metals). Managerial accounting goes one step forward and makes a further comparative analysis and statements of figures that are derived by financial accounting and costing. Other managerial accounting functions include the analysis of every possible transaction and projecting the trend of transactions. Basically managerial accounting factions deal with internal and external forces of transactions that influenced the businesses entity to find out answers to the questions such as 'what is the monetary productivity of the factory?', or 'how costly has raw material become?', or 'where can we cut down on costs?' or 'how can we maximize profit?', or where does the market or our competitors stand?'.

One great comment that summarizes the entire essay, was, 'financial accountants deal with recording, processing and presenting transactions in ledger books and books of accounts. Cost accountants pour over the ledger books to determine the per unit cost, and present it properly in the cost sheet. Managerial accounts, chew the ends of pencils, pour over both ledger books and cost sheets to determine where the business exactly stands.