Difference Between Cost Accounting and Financial Accounting
Businesses primarily use two types of accounting: financial accounting and cost accounting . Both have a very high importance and are very useful in the management of a company.
They present relevant differences between them that we will see below, separated in different aspects. We are going to see the differences between cost accounting and financial accounting according to their objective, their users, their periods, their regulation, their unit of measurement and their accuracy.
Differences according to the objective
First of all, we must know what the objective of each one is.
Cost accounting is aimed at obtaining the cost of products, while financial accounting is intended to obtain financial statements that show the assets , financial situation and results of a company.
Difference according to users
As we can see, they are very different objectives and, therefore, each accounting system is aimed at different users.
Analyzing the costs allows us to obtain an internal information system that is only accessible and useful for company personnel.
On the other hand, the financial statements obtained through financial accounting are intended for reading by internal and external users such as, for example, banks, investors or public administrations, which can access them by reading the annual accounts of the company.
Difference according to periods
The periods of both accounts are different.
If we think of a balance sheet of a company, it is a "snapshot" of the financial situation on a specific date (normally December 31) that reflects what has happened during that year or earlier. That is, it shows past events.
In contrast, cost accounting prevents events that have not occurred and is aimed at making decisions focused on the future.
Differences in regulation
In terms of regulation we find another important difference.
Financial accounting is mandatory and is regulated by the General Accounting Plan, while cost accounting is voluntary and is not regulated by any regulations.
Since there are many variables that influence the cost of a product (expenses, manufacturing time, different types of costs, etc.), the information obtained on the cost of a product is not always exact, and is probably an estimate.
On the contrary, financial accounting is the reflection of real transactions of a company, so it has a very high accuracy.
Differences by unit of measure
Finally, we find another difference in the units of measurement used.
In cost accounting, a standard measure is not used, but rather each cost calculation is adapted to the type of product (machine hours per product, cost, labor hours or units produced, etc. can be used). . Financial accounting, on the other hand, is rigid in this aspect and presents the information in the monetary unit of each country.
As a summary, we are going to synthesize all the information discussed in a table:
|Cost accounting||Financial Accounting|
|Target||Analyze the costs.||Know the economic-financial situation of a company.|
|Users||internal.||Internal and external.|
|periods||Any period of time. Future events.||1 year. Past facts.|
|Regulation||No regulation. volunteer.||PGC. Mandatory.|
|Accuracy||No, estimates.||Yes, exact.|
|Unit of measurement||Several.||Monetary unit.|