Before we go to differentiate Financial & Cost Accounting we must have knowledge what these both terms really are. As we elaborate both terms these would automatically be differentiated.
Financial Accounting:
Financial Accounting is a systematical scheme to prepare the financial statements of an organization is order to accept the fair and shapely belief profit or loss. These financial statements are organized for decision making, stockholders, Banker, Supplier, Shareholders, Government Agencies, and other stakeholders. The basic requirement to prepare financial statement is to put a question to and slice the dumb expenses by measuring the expenses and income dwelling and to reporting the result to keen users. These statements are organized for outsiders who do not grasp fraction in day to day organizational activities.
Simply we can say, "Financial accounting is the process which includes recording, interpreting & summarizing date taken from financial records of an organization and bring it out in an annual recount for the encourage of people outside the organization".
In depth financial accounting contains some principles, Concepts & Equation.
Financial accountants organize financial statements based on Accounting Principles which are generally approved by a specific country. Financial statements must be prepared according to the (I FRS) International Financial Reporting Standards.
Accounting Equation: (ASSETS = LIABILITIES + OWNER'S EQUITY) .
Accounting Cycle:
1.Voucher.
2.General Journal.
3.General Ledger.
4.Cash Book.
5.plug Balance.
6.Trading profit & Loss chronicle.
7.Balance Sheet. Cash lumber Statement.
First of all the transaction occurs and eminent in the design called Voucher. All transactions are available in vouchers. Then one specific construct is created called General Journal. All transaction recorded in one perform. The next step is Called Posting in which all separate heads/accounting recorded separately in different form/accounts called General Ledger. Cash Book is maintained to recount the payments and recipes or organization. By the back of General Ledger the inch Balance prepared which provides the items of Trading, profit & Loss tale and Balance Sheet which shows the financial location and the health of the Organization. And lastly Cash trot Statement is prepared to drive the accrual inflow & outflow of cash.
Cost Accounting:
Cost accounting ascertains budget and right cost of production, operations, departments, process and the analysis of variance. Cost accounting is traditional to encourage decision-making to slice cost of organization and improve its profitability. Cost accounting does not require standards as (GAAP) Generally celebrated Accounting Principles, as its valuable exhaust is for internal management, rather than outside people. Some of managerial accounting approaches are mentioned as under;
• Managerial Costing.
• Activity based Costing.
• Standard Cost Accounting.
• Resource Consumption Accounting.
Three Classical Cost Elements:
• Raw Material.
• Labor.
• Factory Over Head/Indirect Expenses.
Cost Accounting is being frail to back the managers to understand & carve the running cost of an Organization. Most of Cost varied with the rate of production which is called "Variable Cost" like money spent on labor, power to accelerate a factory, relate material etc. Unlikely variable cost, some costs remain the same even while busy period or during null production. These costs are call "Fixed Cost" like Depreciation on Assets, Rent of building etc.
In cost accounting some statements are prepare. Majors are Income Statement, Cost of Goods Sold Statement, and Cost of Production represent.
Income Statement:
Income statement is prepared to drive the acquire income/profit of the organization. In the process all impart Expenses related to hold of Goods/material are less from Sale and the retained amount is called deplorable Profit. Then all indirect expenses related to sales, Admin & Financial Charges are deducted from (GP) contaminated Profit, retained amount after deduction is called (NP) bag Profit/income.
(CGS) Cost of Goods Sold Statement:
Cost of Goods sold statement is prepared to drive the total cost which is spent on the purchasing to sell the produced Goods. In the preparation process first of all the Closing Martial of last year is added in engage of Martial, which is called "Total Material Available for exhaust" and Material mature is deducted from it. The remaining amount is called "Cost of Material Consumed". Then the cost of Labor and (FOH) Factory Overhead added in cost of material consumed. The total of this is called "Total Factory Cost" after that Opening stock of work in process is added and closing stock of work in process is deducted from Total Factory Cost. The amount which drives after this is called "Cost of Goods Manufactured". Lastly the Opening Stock of Finished Goods is added and Closing Stock of Finished Goods is deducted from Cost of Goods accomplish and the Answering amount is Called "(CGS) Cost of Goods Sold"
(swear Material + deny Labor= Prime Cost) (Labor + FOH= Conversion Cost)
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