Cost refers to the actual or estimated amount of expenses incurred or to be incurred on a particular article, or activity. The concepts of costing and cost accounting are related to cost accountancy, which is commonly juxtaposed by the students. Costing is concerned with the method of assessing the cost of goods produced and services rendered, at different stages of the production process.
On the contrary, cost accounting is associated with the recording of income and expenses, determination of costs, preparing periodical statements and reports, so as to present the same to the management of the firm, to assist them in the decision making the process.
Now, if we talk about cost accountancy, it is the basic application of costing techniques and cost accounting process in a business organization. So, without further ado, we are going to talk about the differences between costing and cost accounting, take a look.
Content: Costing Vs Cost Accounting
|Basis for Comparison||Costing||Cost Accounting|
|Meaning||Costing refers to the practice of identifying costs of any product, service or activity, at various times and stages of production.||Cost Accounting is a method of accounting that records, classifies, allocate, summarize, analyse, interpret and controls the cost incurred on any product, process, service or activity.|
|What is it?||Process and techniques of determining costs.||Specialized branch of Accounting.|
|Decision making||It is not used for decision making.||It is used by management for decision making.|
|Accounting principles||Accounting principles are not applied.||Application of accounting principles is important.|
Definition of Costing
The word ‘costing’ refers to the technique and process of recognizing input costs at each step of production. In costing, different ways or methods are used by the firm which comprises of basic principles and set of rules that need to be applied for regulating the entire process so as to determine the cost of product or service.
Costing serves as a basis of an internal financial information system to the organization’s management, by supplying data concerning the activities which require proper planning and controlling on the part of managers, so as to opt the correct future course of action.
The costing techniques which determine the expenses and processes for various products or services are different for different types of industries, as well as it is dynamic in nature which changes with the change in time.
Costing aims at analysing the financial records so as to classify the expenses, summarize the element and allocate the same to respective cost centre, so as to compute the total cost for the unit, process, job or contract etc., relation of these costs with the total sales and profitability.
Definition of Cost Accounting
Cost Accounting is that branch of accounting which deals with the incurrence and control of costs. It determines and accumulates the cost of product, service or activity, wherein, the cost is classified, recorded, allocated, analysed, interpreted and controlled.
As its name suggests, it refers to accounting for cost starting with recording the income and expenses, and ending with the preparing periodical statements and reports so as to ascertain cost of product and service, as well as presenting the data in a comprehensive and organized manner for the purpose of controlling costs and also guiding the management, to take corrective actions and rational decisions.
Cost Accounting facilitates the management to ascertain the total cost of any specific unit of production with a considerable degree of accuracy while presenting exactly how such total cost is being formed. It helps in measuring the operational efficiency of the concern.
Cost Accounting involves thoroughly analysing, forecasting, standardising, and comparing the cost data, and supplying the same in the form of statements and reports to the management for better decision making. Further, it involves preparing budgets, ascertaining the standard costs based on estimates, finding out variances and the reasons for so.
The primary objective of cost accounting is to know the cost under various scenarios using different techniques and costing methods. It also aims at ascertaining the selling prices under various situations, as well as the value of closing inventory to assist in preparing the accounting statements of the concern.
Key Differences Between Costing and Cost Accounting
The difference between costing and cost accounting are discussed in the points given below:
- Costing can be defined as the process of recognizing the cost of product, service, or activity incurred at different levels of production. On the other hand, Cost Accounting is a formal mechanism of analysing and classifying the expenditure, to determine the total cost of product or service, with a substantial amount of accuracy, while showing what this cost comprises.
- Costing covers the techniques and process of ascertaining the cost incurred in production. As against, Cost Accounting refers to that type of accounting which includes costing, application of cost control methods and computation of profit.
- Costing involves classification of expenses as per the cost elements. It is concerned with the allocation of costs to the cost centre and evaluating various options, to reduce the cost of production. In contrast, cost accounting information is used by the management, in important decision making with respect to the production planning, method, technique, resources and so forth.
- As costing does not necessarily apply formal accounting mechanism, and so the accounting principles do not play a significant role in costing. However, cost accounting is a part of accounting, and so basic accounting principle is applicable to it.
- Costing is an indispensable part of cost accounting as it contains various techniques on which the entire cost accounting system is based. Conversely, Cost Accounting is not confined to costing techniques, rather it also captures the cost related information, prepares periodical statements and reports, so as to ascertain and control costs.
To sum up, we can say that cost accounting gives us the basis and relevant information, required for determining the cost of production. And when that information is at hand, the costing process is undertaken arithmetically by using periodical statements or integral accounting.