What is cost accounting ?

Cost accounting is a type of accounting that does not depend on the type and size of the company, but instead goes to consider other factors to determine and record the income and expenses. In fact, the common purpose of any kind of accounting is to keep track of all movements, even if considered in a different way, in order to be able to draw up a balance sheet at the end of the year and keep the situation under control. All types of companies, from manufacturing to services, require cost accounting to monitor their activities. Cost accounting has been used to help managers understand the running costs of a business. Managers could simply sum up variable costs of a product and use them as rough guidelines for decision-making. Costs that tend to remain unchanged even during the high season are called fixed costs, unlike the variable costs, which increase and decrease in proportion to the volume of work.
Manuel de comptabilité analytique

What are the purposes ?

Each accounting system aims at measuring and controlling certain factors in order to achieve certain objectives. Through cost accounting, managers can:

  • Determine the sale price and remuneration of a product or service;
  • Analyse the profitability of each individual business sector or product;
  • Define the management, control, and business planning;
  • Recover internal data to be added to external data for general accounting;
  • Measure the degree of management efficiency;
  • Make business decisions correctly based on the available data.

What are the differences between general and cost accounting ?

Cost accounting helps to determine the general accounting. That is why the differences between these two methodologies are important.

First, cost accounting is optional, while general accounting is compulsory. The general accounting refers to a period of time corresponding to one year, while the time horizon of the cost accounting is discretionary. You can choose to set the deadline to one month, one year or five years, depending on the objective to be expected.

The general accounting, being compulsory by law, must be drawn up according to specific and standardized criteria and forms, usually through the double-entry method.

Dealing with the analysis of costs and revenues of the company allows the preparation of the annual financial statements, and therefore to verify the general condition.

Only with the cost accounting, it is possible to verify the progress of a single product, a unit, a material and any other factor that you choose to take in consideration.

How? The general accounting examines only certain data expressed in numeral form. However, cost accounting takes other factors into consideration in order to translate them into measurable parameters that are necessary to draw conclusions.

Finally, with cost accounting, it is possible to carry out analyses on the trend of fixed and variable costs.

What are the advantages ?

Cost accounting is a free choice of the entrepreneur who will be able to take into consideration a number of elements and correlate them in order to attain a conclusion.

The job of the controller is to analyze the data in order to obtain statistics that can provide answers and useful data for the business.

Example: How much raw material is used to produce a finished product? How many products are produced in one hour? What is the most profitable product? What is the margin generated for each product?

Knowing all this data is essential to allow continuous improvement. Because this is the life of the entrepreneur: do not rest, always look for a way to improve yourself and your business.

If the general accounting proceeds to an analysis at a general level, the cost accounting makes it possible to take into account the revenues and costs which refer to a specific sector.