Differences between Financial Accounting and Cost Accounting ...

All businesses have one thing in common, despite their different natures and origins: the accounting process. If a business does not have an accounting system, it is guaranteed to fail in just days or weeks of operation. Accounting is a process that you must understand as a start-up business owner.

Accounting, basically, is divided into two phases: cost accounting and financial accounting. It is important to understand the differences between these two phases.

Receivers of financial information

You need to understand that accounting is a tedious process, but there are various ways to simplify it. While others are comfortable with using manual accounting process, some entrepreneurs rely on online accounting software. Nevertheless, cost accounting and financial accounting have different audiences or receivers of information.

Financial accounting is the preparation of reports for audiences outside the business. These reports are meant for investors, creditors, and regulatory agencies. If your business has a sleek financial accounting system, you have more chances for greater leverage in the finance sector. This is essential for the growth of your business.

The audience in cost accounting is limited to the management team of the business. Once overhead costs are forecast, you and your business team can determine the sets of strategies that must be taken to maximize overall profits.

Profit analysis

Financial accounting and cost accounting are two basic ways of analyzing the profits of any business. Simply put, financial accounting is all about the analysis of profits and loss covered over a certain trading period. This period can last for more than a year, serving as a large scope that can mirror the financial efficiency and the productivity of a business.

Cost accounting, on the other hand, covers a brief period within the cycle. However, it shows all important details?logistic expenditure, product upkeep, and even extra manpower costs. Cost accounting is more important than financial accounting because it will show you a detailed outlook regarding the state of your business.

Timing of reports

Businesses must always follow a very strict time table. If schedules are not followed, a business may lose profits and its bearing on goals. Time is also very important to the accounting process of any business. This is why many business owners are now relying on convenient and easy-to-use accounting software.

In financial accounting, reports are usually submitted once the accounting period is over. This means that the report is somehow generalized for the receivers of information. Cost accounting, in contrast, allocates the report process within timely intervals, depending on the need of the organization.

Regulations

All businesses must follow a set of regulations imposed on local and international standards. These regulations can affect business strategies and expenditure. Financial accounting and cost accounting have different levels of local regulations.

Financial accounting must strictly adhere to the regulations of taxation, income levels, and other corporate laws that govern the trade system. If the financial accounting reports of your business are flawed, the business may be at peril.

Cost accounting has minimal regulations and it is limited within your business team. Since cost accounting is a process owned by your business, the process management depends on your business strategy. You still have to research about local regulations, though.

Conclusion ? the importance of both processes to your business

By learning more about these two accounting systems, your business will have a faster climb on the success ladder. As a business owner, it is necessary to find balance between these two accounting systems.

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Source: http://onlineaccountingblog.shoebooks.com.au/2013/06/10/differences-between-financial-accounting-and-cost-accounting/

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