Comparing Cost Accounting and Management Accounting
Cost accounting and management accounting are two overlapping concepts that summarize, synthesize, and report an entity’s financial liabilities and assets. Cost accounting relates to managerial accounting in that the management needs to comprehend various elements of costs accounting while managerial accounting utilizes cost accounting subjects, for example, cost-benefit synthesis. Cost accounting is about computing and controlling an organization’s expenses. Management accountants cite data from cost accountants, followed by the analysis of the information is used in the preparation of reports that are critical to management. Accordingly, management accounting is a broader area that includes making decisions on managing risks and the overall strategy. Hence, cost accounting acts as a sub-branch of managerial accounting (Richardson 2017). The two concepts might overlap with each other but represents distinct areas of study during accounting. The purpose of this paper is to compare cost accounting and management accounting.
Costs accounting refers to the set of processes vital in identifying, classification, recording, aggregating, and reporting costs incurred or allocated for different departments within an organization. It also conducts a comprehensive analysis of the actual costs and the standardized costs before reporting the outcomes. On the other hand, management accounting comprises a series of procedures that identify, measure, accumulate, synthesize, interpret, and communicate an organization’s financial data. The final management accounting report is used to make critical decisions, evaluations, planning, and control of functions within an organization. The main similarity between the two forms of accounting is that they utilize quantitative data and provide essential information to guide the organization’s plans, cost control measures, and final decisions (ICSI 2017). Therefore, it is safe to argue that without cost accounting, then managerial accountants will lack the critical information to make effective decisions that would contribute to business development.
Cost accounting and management accounting have crucial differentiating features. The main difference between the two concepts is that cost accounting is about accumulating and allocating to establish actual values. Management accounting uses such information and other information to help managers make critical decisions and document reports. While cost accounting is limited to cost-related principles and data, management accounting includes cost and financial accounting data and codes. Also, cost accounting findings are useful to all stakeholders, including management, creditors, and shareholders.
In contrast, management accounting findings are vital for managers and might not necessarily be used by other stakeholders. Management accounting is broad, utilizing quantitative and qualitative data and basing the decision on predictive and historical information. Simultaneously, the cost account is narrow in its scope, using historical information only during analysis (De Brouwer 2014). In the end, cost accounting determines management accounting success, while cost accounting itself does not depend on management accounting.
Cost accounting and management accounting are two essential processes that facilitate successful accounting during business operations. Cost accounting is about calculating the costs of assets and liabilities of a company, while management accounting is about making decisions based on information from cost and financial accounting. The paper has shown that the two concepts have similarities and differences. The similarities include using quantitative data as the basis of making decisions on controlling costs and plans. However, there are differences between cost and management accounting. Management accounting is a broader topic that encompasses the findings of costs accounting and other forms of accounting, while cost accounting utilizes data related to costs only. Also, management accounting is intended to help managers, while cost accounting provides critical information to other stakeholders. Cost accounting is a subset of management accounting, and both are part of the more extensive process of overall accounting within an organization.
References
De Brouwer, P. (2014). Managerial Accounting: Methods and Functions, Retrieved on 4 March
2021, from, https://www.de-brouwer.com/assets/students/uw_eMBA_wikibook-managerial-accounting.pdf
Richardson, A., J. (2017). The Relationship between Management and Financial Accounting as
Professions and Technologies of Practice, The Role of the Management Accountant – Local Variations and Global Influences (Routledge Studies in Accounting), Retrieved on 4 March 2021, from https://core.ac.uk/download/pdf/72794755.pdf
The Institute of Company Secretaries of India (ICSI). (2017). Cost and Management Accounting
Module 1 Paper 2, Retrieved on 4 March 2021, from https://www.icsi.edu/media/webmodules/publications/FULL_BOOK_PP-CMA-2017-JULY_4.pdf