Cost and management accounting is a field of accounting that provides cost information to internal administration for planning, control and decision-making purposes. The CIMA (Chartered Institute of Management Accountants) defines it as “the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information that management uses to plan, evaluate and control within an entity and to ensure the proper use of responsibility for its resources”. This type of accounting is focused on providing information to those within an organization who direct and control its operations. On the other hand, financial accounting is concerned with providing information to shareholders, creditors, and other external parties.
Cost management and accounting systems are essential for the internal management of a company. Cost accounting has a quantitative approach, while management accounting focuses on both quantitative and qualitative data. Cost accounting deals with most aspects of costs, such as allocation, distribution, and comprehensive auditing. Instead of taking two separate financial and management accounting courses, students should take two courses that integrate both fields.
Because management accounting covers every aspect of business finance, cost accounting is actually a subset of management accounting. Cost accounting staff can issue reports at any time and with any degree of frequency, depending on management's need for information. There are a number of differences between cost accounting and financial accounting. Management accounting must be based on predicting markets and future trends in order to provide business leaders with the information they need to make operational decisions in a timely manner.
Cost accounting collects the cost of raw materials, work in process, and inventory of finished products while financial accounting incorporates this information into its financial reports (mainly in the balance sheet). Management accounting is used by the management of a company to produce information for better management. The information in a cost accounting report can contain financial information and operational information. Financial accounting is only concerned with reporting the results of reporting periods that have already been completed.
This type of cost accounting tracks expenses related to environmental impact (cost of providing a service or producing a product). Lean accounting analyzes costs with the objective of minimizing waste and maximizing efficiency to facilitate the most efficient business operation possible. In conclusion, cost and management accounting is used according to management requirements or as needed while financial accounting is concerned with providing information to shareholders, creditors, and others outside the organization. Cost accounting has a quantitative approach while management accounting focuses on both quantitative and qualitative data.
Financial accounting is only concerned with reporting the results of reporting periods that have already been completed while cost accounting tracks expenses related to environmental impact. Lean accounting analyzes costs with the objective of minimizing waste and maximizing efficiency.