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Cost accounting is the process of collecting, analysing, summarizing and evaluating alternative courses of action in terms of costs and advising the management on prudent courses of action on the basis of cost efficiency and managerial capabilities of the given group of managers. There are several significant differences between cost accounting and financial accounting with the first being that financial accounting is an estimation of performance based on financial statements while cost accounting is an estimation of the most efficient means of performing for a given enterprise. Another important difference is that the users of financial accounting can be both internal and external while the users of cost accounting are exclusively internal. While both cost accounting and financial accounting concern themselves with financial data, their respective classifications are quite different. Cost accounting classifies according to intended utility while financial accounting classifies according to transactions. Another significant difference between the two respective domains of accounting is that while financial accounting is subject to the Generally Accepted Accounting Principles, cost accounting has to make no such considerations.
Cost accounting is also concerned with validating and enhancing the quality of cost accounting information given to managers so that they in turn can make better managerial and business decisions. The primary function of cost accountants is to ensure that the given information is relevant to the factors being considered by managers operating in particular environments before making their decisions. Cost accounting traditionally considers the incumbent cost input variables to be raw materials, labour and indirect expenses/overhead and uses various methods of approach, namely standard cost accounting, lean accounting, activity-based costing, resource consumption accounting, throughput accounting, life cycle costing, environmental accounting, target costing and marginal costing/cost-volume-profit analysis. All these approaches have their own methodologies and concerns. This makes cost accounting an expansive field which students would be hard pressed to understand completely, even with guidance from academics.
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