FINANCIAL ACCOUNTING

Accounting is a system of collecting, summarising, analysing and reporting information about a business enterprise in financial terms. The business accounting system consists of : 1. Financial accounting 2. Cost accounting 3. Management accounting Financial accounting is concerned with financial statements for external use by investors. It involves recording ,classification, analysis of business transactions in a subjective manner.It is primarily concerned with record keeping directed towards the preparation of P/L account and BS.

LIMITATIONS OF FINANCIAL ACCOUNTING

P/L for business as a whole No control over materials No classification of costs Provides only historical information No data for comparison and decision making Inadequate information for reports

The above limitations of financial accounting led to the development of cost accounting.

DIFFERENCES BETWEEN FINANCIAL AND COST ACCOUNTING

1. 2. 3. 4. 5. 6. 7. 8. Purpose Total vs. segments Sources of economies and losses Control aspect Analysis of costs GAAP vs. flexibility Report frequency Legal requirements

MANAGEMENT ACCOUNTING It is concerned with accounting information that is

useful to management. --R.N.ANTHONY It is been used for the purpose of policy formulation, planning, control, decision making by management.

COSTING METHODS
Cost accounting consists of a body of methods and techniques by which cost of products and services are determined and presented. These are the tools of cost accountants.Different methods of cost finding are used because businesses vary in their nature and type of products they produce. There are 2 main types of costing system. They are: Job costing Process costing

JOB COSTING
It includes: Batch costing---it is an extension of job costing . It consists of a number of similar products.The cost of a group of products consistuting the batch and not the single item within the batch is ascertained. Contract costing---a contract is a big job and it is spread over a period of time. It is a method of costing in which each contract is taken as a separate costing unit for the purpose of cost ascertainment.

PROCESS COSTING
Here costs are accumulated by single processes for selected period of time. The important variants of process costing are: Single/unit/output costingit is a method in which cost is ascertained in convenient units of product turned out by continuous manufacturing activity. Operation costinghere the cost unit is an operation rather than the whole process. Service costingknown as operating costing. It is a distinct type where services are being provided rather than goods manufactured. Multiple costingcompanies employ a hybrid or a mix of job costing and process costing.