Difference Between Cost and Management Accounting pdf

Differences between Cost and Management Accounting

The difference between cost and management accounting are mentioned in the following table.

BASES OF DIFFERENCE	COST ACCOUNTING	MANAGEMENT ACCOUNTING
1.      Meaning	Cost accounting is concerned with the recording of cost, ascertainment of cost of product and services and analysis and control of cost.	Management account is a concerned with assisting the management in planning, decision –making and controlling.
2.      Objective	The main objective of cost accounting is the ascertainment, analysis and control of cost.	The main objective of management accounting is to provide necessary information to the management for planning, decision making and controlling.
3.       And c	Under cost accounting the recording of historical transactions are made on the basis of which the future costs are estimated.so, it is historical as well as futuristic in nature.	Since, management accounting is concerned with planning and forecasting, it is futuristic in nature.
4.      Data	Cost accounting considers the quantitative figure only.	Besides the quantitative figures, management accounting considers the qualitative aspects as well.
5.      scope	It scope is comparatively narrow since it does not include financial accounting tax planning and tax accounting	Its scope is comparatively which since it includes financial and costs accounting along with tax planning and tax accounting.
6.      Evolution	Cost accounting has evolved to overcomes the limitations of financial accounting	Management accounting has evolved to use the positive aspects of cost and financial accounting for planning and controlling.
7.      Installation	Cost accounting can be installed without management accountant.	Management accounting needs cost accounting and financial accounting for its installation.
8.      status	The status of cost accountant comes after management accountant.	The status of management accountant comes before = the cost accountant.

 

SIMILARITIES BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING

   

 

There are many similarities between financial and management accounting as given below:

1. Both the financial and management accounting provide information to the users so that they can make informed decision.
2. Both of them deal with financial statements based on revenues, expenses, assets, liabilities, and cash flows.
3. Both of them are the parts of total accounting information system and use the same accounting data and information.
4. Both of them are similar in determination and measurement of costs and their allocation to different accounting periods, departments and units.
5. Both of them use historical data.

 

 DIFFRERENCES BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING

The difference between financial accounting and management accounting are mentioned below:

Bases of difference	Financial accounting	Management accounting
Users	Financial accounting is more confined to prepare the accounts to meet the requirements of external parties such as shareholders, creditors, etc.	Management accounting provides information to the internal users I.e. management only.
Methods	Financial accounting is based on double entry system.	Management accounting is not based on double entry system.
Principal	Financial accounting is based on generally accepted accounting principal (GAAP).	In addition to, generally accepted accounting principal (GAAP), management accounting is based on reality, forecasting and analysis.
Measurement	In financial accounting only monetary transaction are recorded.	In management accounting certain non-monetary events like competition, technique changes and change in the value of money, etc. are also consider.
Time span	Under financial accounting, the reports are generally prepared for a certain period of time i.e. one year.	The reports under management accounting do not cover a specific period of time. They can be prepared at any time as per requirement.
Precision of information	In financial accounting more emphasis is laid down on the precision and reliability as to exactness of the facts and figures.	In management accounting less emphasis is laid on precision, i.e. even approximate figures presented in time are more valuable than presenting late.
Nature of data	The data and information under financial accounting are historical in nature.	The data and information under management accounting are futuristic in nature.
Nature of information	Financial accounting provides aggregate or collective information.	Management accounting provides information about each and every activity.
scope	The scope of financial accounting is narrow.	The scope of management accounting is broad.

 

REVIEW OF THERETICAL CONCEPT

   Write any five limitation of financial accounting.

   Five limitation of financial accounting are as:

Ø  Discloses the overall result only: financial accounting discloses the overall result of a business only. It fails to reveal the results of a business only. It fails to reveal the results of each department, process, products, jobs, etc.

Ø  Not helpful in price fixation: financial accounting does not provide adequate information for fixation of selling prices of the products or services rendered by the business.

Ø  No controlling over costs: financial accounting does not provide proper system of controlling various element of cost like material, labor and other expenses.

Ø  No classification of costs: financial accounting does not classify costs into different categories such as direct and indirect, fixed and variable, controllable and uncontrollable, normal and abnormal, etc.

Ø  Fails to offer a system of standards: financial accounting fails to measures the efficiency of materials, labor and other resources as it does not offer any system of standards.

Ø  To help in fixation of selling price: Another important objective of cost accounting is to help in fixation of selling price. The costs are accumulated, classified and analyzed to ascertained cost per unit.

Ø  To control cost: cost accounting aims at controlling the cost by using various techniques, such as standard costing and budgetary control.

Ø  To aid the management: cost accounting aims at assisting the management in planning and its implementation by providing necessary costing information that also enables the evaluation of the past activities as well as future planning.