COST ACCOUNTING AND MANAGEMENT ACCOUNTING

 

Cost accounting is the process of accounting for costs. It embraces the accounting procedures relating to recording of all income and expenditure and the preparation of periodical statements and reports with the object of ascertaining and controlling costs.

It is, thus, the formal mechanism by means of which the costs of products or services are ascertained and controlled. On the other hand, management accounting involves collecting, analyzing, interpreting and presenting all accounting information, which is useful to the management. It is closely associated with management control, which comprises planning, executing, measuring and evaluating the performance of an organization.

Thus, management accounting draws heavily on cost data and other information derived from cost accounting. Today cost accounting is generally indistinguishable from the so-called management accounting or internal accounting because it serves multiple purposes. However, management accounting can be distinguished from cost accounting in one important respect.

Management accounting has a wider scope as compared to cost accounting. Cost accounting deals primarily with cost data while management accounting involves the considerations of both cost and revenue. Management accounting is an all inclusive accounting information system, which covers financial accounting, cost accounting, and all aspects of financial management. But it is not a substitute for other accounting functions.

It involves a continuous process of reporting cost, financial and other relevant data in an analytical and informative way to management. We should not be very much concerned with boundaries of cost accounting and management accounting since they are complementary in nature. In the absence of a suitable system of cost accounting, management accountant will not be in a position to have detailed cost information and his function is bound to lose significance. On the other hand, the management accountant cannot effectively use the cost data unless it has been reported to him in a meaningful and informative form.

 

 

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