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Cost Accounting vs. Managerial Accounting

Introduction

Cost accounting is often associated with managerial accounting. Management accountants need to understand cost and its concepts. Cost concepts are useful in many areas of managerial accounting, such as in cost-benefit analysis, investing and financing decisions, performance evaluation, and many others.

What's in Here

Cost accounting involves the accumulation and assignment of costs, and is especially useful in manufacturing firms.

It usually involves measuring raw materials, work-in-process, and finished goods.

It also involves preparing cost variances to help management understand situations better.

Both managerial and financial accounting utilize cost information provided by cost accounting.

Despite the presence of overlapping topics, cost accounting and managerial accounting are two different branches having different study focus.

Cost Accounting

Cost accounting is defined as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs." (IMA)

Cost accounting focuses on the accumulation of costs incurred and allocating or assigning such costs to products or departments.

Managerial Accounting

Managerial accounting (or management accounting) "involves partnering in management decision-making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy." (IMA)

It is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information, which is used by management to plan, evaluate, and control within an organization.

Difference between Cost Accounting and Managerial Accounting

Based from the definitions given above, the difference between the two lies in their functions. The main function of cost accounting is cost accumulation and allocation to determine cost values. Managerial accounting, on the other hand, provides information to the members of the management for decision-making purposes, and this information may include cost information from cost accounting.

Financial accounting, another distinct branch of accounting, also utilizes cost accounting concepts. Cost accounting provides the needed values to be reported in the financial statements, especially in the computation and presentation of cost of sales.

Cost accounting is in itself a separate subset, but is present in both managerial accounting and financial accounting.

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