Cost Accounting Vs. Managerial Accounting

Business firms and entities exist to derive profit. When it comes to profit, accounting becomes an integral part of business. Accounting, in a broad sense, involves summation, estimation, forecasting, and analysis of financial transactions.

Accounting as an academia and even practice can be divided into several aspects, such as cost accounting, regular financial accounting, or even managerial accounting. All these are known as systems or types of accounting, and are of different nature and have different objectives.

There is a very thin differentiating line between such systems of accounting, and often, very similar formulas, statements, and mechanisms are used. In simple words, the difference between these systems of accounting is the process and its objective, the fundamentals remain the same. These accounting systems are also included in GAAP.

Cost accounting, which is sometimes also referred to as cost method of accounting, involves forecasting the per unit cost of a good or service.

The per unit cost derivation is not restricted to one unit of good, but is also used to compute the expenditure of running one line of production, calculation of materials consumed by one machine, etc. The different expenditures that are involved in production of every unit are computed.

Managerial accounting is the recording, regeneration, planning, and analysis of incomes and expenditures. It is basically a financial management function and is done to provide a certain logical money-based mathematics to managerial decisions. It thus involves comparison, analysis, and business logic to process information regarding transactions.

From the point of view of practical hierarchy, cost accounting is considered to be a part of managerial accounting. Cost and managerial accounting, unlike financial, are more analytical in nature, are internal accounting systems, and are not usually disclosed to the public.

Practically speaking, cost accounting involves computation of cost per unit with different angles. For example, cost accounting in a steel mill will principally involve the computation of cost of one ton of steel. For this, a foreman's salary that contributed to the production of that ton of steel is computed.

The coke, power, workman's salary, premises, and factory machinery cost are some other items that are adding to prime costs (cost of raw material which in this case is iron and other metals).

Managerial accounting goes one step forward, and makes a further comparative analysis and statements of figures that are derived by financial accounting and costing. Other managerial accounting functions include the analysis of every possible transaction and projecting the trend of transactions.

Basically, managerial accounting factions deal with internal and external forces of transactions that influenced the businesses entity, to find out answers to the questions like 'what is the monetary productivity of the factory?', or 'how costly has raw material become?', or 'where can we cut down on costs?', or 'how can we maximize profit?'.

Summarizing, financial accountants deal with recording, processing and presenting transactions in ledger and account books. Cost accountants pour over the ledger books to determine the per unit cost, and present it properly in the cost sheet. Managerial accounts pour over both ledger books and cost sheets to determine where the business exactly stands.