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Cost Accounting Intro

what is cost accounting and how to do it

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18 views5 pages

Cost Accounting Intro

what is cost accounting and how to do it

Uploaded by

blackeagle4445mi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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What is accounting?

Identifying, classifying, summarising and recording of


particular formats known
monetary transactions of business in
financial statements (profit and loss
as
and balance sheet). The information account, cash flow statement
derived from various financial
statements is used to
present a true and fair view of a
company's financial position in a given period of time of one
year. This type of accounting is known as financial
accounting.
Limitations of financial accounting
Financial accounting is significant as it provides relevant information about the financial
position of a business which is useful for various stakeholders of concerned
business namely
government, general public, investors, labour unions, customers etc. we can't
deny various
advantages of financial accounting but it also suffers from the following limitations:
1. Financial accounting shows only overall performance and does not provide detailed cost
information.
2. It contains historical cost information
accumulated at the end of the year and no
of computing day to day cost. Historical information is systemn
not very reliable for
predicting future
earnings.
3. No system for performance appraisal with regards to efficient use of material, labour
and other costs.

4. No cost control system


5. No proper classification of cost as fixed and variable, direct and indirect, controllable and
uncontrollable.

6. No analysis of losses occurred due to idle plant capacity, idle tine, and inetticient labour
7. Does not provide data for cost comparison for different periods, different jobs, and
different departments.

8. Fails tosupply useful data to management for taking various decisions like replacement
of labour, machines, introduction of new unit etc.

Because of above mentioned and various other limitations of financial


accounting, the
concept of cost accounting has emerged.

What is Cost?

The amount of expenditure incurred to obtain something. For example, total expenditure in
making a table.

What is Costing?

It is the process of ascertaining costs. For example, ascertaining of costs of different raw
materials required in making a table.
What is Cost Accounting?

Cost Accounting = Cost + Accounting

Extended version of costing i.c when costing is recorded or analysed in proper accounting
formats then costing becomes cost accounting. For example, when ascertained costs recorded
in respective accounts.

What is Cost Control?

Cost control can be achieved through various techniques. Standard costing and Budgetory

costing are one of them.

Standard costing is a technique which seeks to control the cost of each unit by asking a
it with actual cost and also
question regarding what should be the cost? And then compare
analyse variances along with causes.
it
Budgetory costing is laying monetory and quantitative terms what and how exactly
down in
from planned course of action.
has to be done and ensure that actual results do not diverge

What is Cost Reduction?

in per unit cost of a product


It is a process of finding techniques for permanent reduction
without affecting quality.
What is Cost Audit?

Verification of cost accounts.

What is Cost Accountancy?

Cost Accounting

Cost Audit
Costing
COST ACCOUNTANCY

Cost
Reduction Cost Control
| OBJECTIVES OF COST ACCOUNTING

follows
The main objectives of cost accounting can be summarised as
a basis. It is
profit-making
Determining selling price. Business enterprises are run
on
I.
and
thus necessary that the revenue should be greater than the costs incurred in producing goods
servicesfrom which the revenue is to be derived. Cos* accounting provides information regarding
the
the make and sell such products or services. Of course, many other factors, such as
cost to
are also
conditions of the market, the area of distribution, the quantity which can be supplied etc.
to be given due consideration by the management before deciding upon the price
but the ccst

plays a dominating role.


2. Measuring and increasing efficiency. Cost involves a study of the various
accounting
operations used in manufacturing a product or providing a service. The study facilitates measuring
of the efficiency of the organisation as a whole as well as of the departments besides devising
means of increasing the efficiency.
Cost accounting also uses a number of methods e.g. budgetary control, standard costing
etc. for controlling costs. Each item of cost (viz. materials, labour and expenses) is budgeted at
the beginning of the period and actual expenses incurred are compared with the budget. This
greatly increases the operating efficiency of the enterprise.
3. Facilitating preparation offinancial and other statements. The third objective of cost
accounting is to produce statements at such short intervals as the management may require. The
financial statements prepared under financial accounting, generally once a year or half-year, are
spaced too far apart in time to meet the needs ofthemanagement. In order to operate the business
at a high level of efficiency, it is essential for the management to have a frequent review of
production, sales and operating results. Cost accounting provides daily, weekly or monthly volumes
of units produced, accumulated costs together with appropriate analysis. A developed cost
accounting system provides immediate information regarding stock of raw-material, work-in
progress and finished goods. This helps in speedy preparation of financial statements.
4. Providing basis for operating policy. Cost accounting helps the management in
formulating operative policies. These policies may relate to any of the following matters:
() Determination of cost-volume-profit relationship.
(i) Shutting down or operating at a loss.
(iii) Making or buying from outside suppliers.
(iv)
Continuing with the existing plant and machinery or replacing them by improved
and economical means.

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