Saturday, February 4, 2012

Cost Accounting

In earlier concept, costing was defined as the technique and process of ascertaining costs of a given thing. In sixties, the definition of cost accounting was modified as the “ application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and ascertainment of profitability of goods or services.” It includes the presentation of information derived there from for the purposes of managerial decision making. It clearly emphasizes the importance of cost accountancy achieved during the period by using cost concepts in ore and more areas and helping management to arrive at good business decisions. To day the scope of cost accounting has enlarged to such an extent that it now refers to the collection and providing all sorts of information that assists the executives in fulfilling the organization goals. Modern cost accounting is being termed as management accounting, since managers being the primary user of accounting information are increasingly using the data provided by the accounts, setting objectives and controlling the operation of the business.

Cost accounting deals with the ascertainment of the cost of product or service. It is a tool of management that provides detailed records and reports on the costs and expenses associated with the operations, mainly for internal control and decision making. Cost accounting basically relates to utilization of resources, such as material , labour, machines,etc and provides information like product cost, process cost, service or utility cost, inventory value etc, so as to enable the management taking important decisions like fixing price, choosing products, preparing quotations, releasing or withholding inventory etc.

OBJECTIVE – The objective of cost accounting is to provide information to internal managers for better planning and control of operations and taking timely decisions. In the early stages, cost accounting was considered as an extension of financial accounting. Cost records were maintained separately. Cost information and data aware collected from financial books, since all monetary transactions are entered in the financial books only. After developing product cost or service cost and valuation of inventory , the costing profit and loss account is prepared. The profit and loss figures so derived by the two sets of books i.e. financial accounts and cost accounts would have to be reconciled, since some of the income and expenditure recorded in financial books do not enter into product cost, while some of the expenses are included in cost accounts on notional basis i.e. without having incurred actual expenses. However a system of integrated accounts has been developed subsequently wherein cost and financial accounts are integrated and one set of books can be maintained.


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