2 of 13

Definition of ACCOUNTING

According to Smith and Ashburne,

“Accounting is the science of recording and classifying business transactions and events, primarily of financial character and art of making significant summaries, analysis and interpretations of those transactions and events and communicating the results to persons who must make decisions or form judgements”.

According to committee on terminology of American Institute of Certified Public Accountants (AICPA),

“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are in part, at least of financial character and interpreting the results thereof.”

3 of 13

COST ACCOUNTANCY

It is applications of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and ascertainment of profitability.
According to the Institute of Cost and Management Accounts, London, “Cost accountancy is the application of costing and cost accounting principles, methods, techniques etc., to the science, art and practice of cost control, cost audit and ascertainment of profitability.”

4 of 13

Cost Accounting:

It is a formal system of accounting for costs by means of which costs of products and services are ascertained and controlled.

Costing:

Costing is the classifying, recording and appropriate allocation of expenditure for the determination of costs of products or services.
The techniques and processing of ascertainment of costs is known as costing. The technique in costing consists of principles and rules which govern the procedure of ascertaining costs of products or services. This technique is dynamic and changes with time.

5 of 13

Financial Accounting

Accounting includes recording, classifying and summarizing of business transactions in terms of money, the preparation of financial reports, the analysis and interpretation of these reports for the information and guidance of management.
According to the American Institute of Certified Public Accounts, “ Financial Accounting as the art of recording, classifying and summarizing in a significant manner in terms of money transactions and events which in part, at least of financial character and interpreting the results thereof”

6 of 13

According to Smith and Ashburne,

“Accounting is the science of recording and classifying business transactions and events, primarily of financial character and art of making significant summaries, analysis and interpretations of those transactions and events and communicating the results to persons who must make decisions or form judgements”.

According to committee on terminology of American Institute of Certified Public Accountants (AICPA),

“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are in part, at least of financial character and interpreting the results thereof.”

7 of 13

Point of Difference	Financial Accounting	Cost Accounting
1. Purpose	It provides information about the business in a general way. It tells about the profit and loss and financial position of the business to owners and other outside parties.	It provides information to the management for the proper planning, operation, control and decision making.
2. Form of Accounts	These accounts are kept in such a way as to meet the requirements of companies Act and Income Tax Act.	These accounts are generally kept voluntarily to meet the requirements of the management But now Companies Act has made it obligatory to keep cost records in some manufacturing industries.

Differences between Financial

Accounting and Cost Accounting

8 of 13

Point of Difference	Financial Accounting	Cost Accounting
3.Recording	It classifies, Records, and analyses the transactions in a subjective manner i.e., according to the nature of expenses.	It records the expenditure in an objective manner i.e., according to the purposes for which the costs are incurred.
4. Control	It lays emphasis on the recording aspect without attaching any importance to control.	It provides a detailed system of control for materials, labour and overhead costs with help of standard costing and budgetary control.
5. Periodicity of reporting	It reports operating results and financial position usually at the end of the year.	It gives information through cost reports to the management as and when desired.
6. Analysis of profit	Financial accounts are the accounts of the whole business. They are independent in nature and disclose the net profit or net loss of the business as a whole.	Cost accounting is only a part of the financial accounts and discloses profit or loss of each product, job or service.

9 of 13

Point of Differences	Financial Accounting	Cost Accounting
7. Reporting of costs	The costs are reported in aggregate in financial accounts.	The costs are broken down on a unit basis in cost accounts.
8. Nature of transactions	Financial accounts relate to commercial transactions of the business and include all expenses viz., manufacturing, office , selling and distribution etc. Financial accounts are concerned with external transactions i.e., transactions between business concern on one side and third parties on the other. These transactions form the basis for payment or receipt of cash.	Cost accounts relate to transactions connected with the manufacture of goods and services and include only those expenses which enter into the production. Cost Accounts are concerned with internal transactions which do not form the basis of payment or receipt of cash.
9. Information	Monetary information is only used i.e.,only monetary transactions are recorded.	Non-monetary information like units is also used i.e., it deals with monetary as well as non-monetary information.

10 of 13

Point of Difference	Financial Accounting	Cost Accounting
10. Figures	Financial accounts deal mainly with actual facts and figures.	Cost Accounts deal partly with facts and figures and partly with estimates.
11. Reference	In opening a system of financial accounting reference can be made in case of difficulty to the company law, case decisions and to the canons of sound professional practice.	No such reference is possible. Guidance can be had only from a body of conventions followed by cost accountants.
12. Relative efficiency	Financial accounts do not provide information on the relative efficiencies of various workers, plants and machinery.	Cost accounts provide valuable information on the relative efficiencies of various plants and machinery.
13. Stock Valuation	Stocks are valued at cost or market price whichever is less.	Stocks are valued at cost.
14. Type of science	Financial accounting is a positive science because it is subject to legal rigidity with regard to the preparation of the financial statements.	Cost accounting is not only a positive science but also a normative science because of it includes techniques of budgetary control and standard costing.

1 of 13