There is at times a confusion between cost accounting and management accounting. This is mostly because for many people their introduction to management accounting comes in the form of cost accounting. From there on the understanding that there is a difference between the two is difficult to ascertain. However, many differences can distinguish them. Among the differences between cost accounting and management accounting are the application, scope, statutory requirements, decision-making basis and users of the information. To understand this further we must clearly define cost accounting and management accounting.
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Cost accounting is a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in total and in detail. It includes methods for recognising, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs. Cost accounting focuses on the accumulation of costs incurred and allocating or assigning such costs to products or departments. Cost accounting falls within the scope of management accounting.
Management accounting involves partnering in management decision-making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy. It is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information, which is used by management to plan, evaluate, and control within an organization. Management accounting is a branch of accounting with a very wide scope.
Now that we have clearly defined both we can start to see the differences between cost accounting and management accounting. We can look at the differences between cost accounting and management accounting by comparing the two side by side concerning certain characteristics as we outlined earlier.
Based on the names you can derive a difference in cost accounting and management accounting. Cost accounting is focused on cost. As the definition illustrated earlier it is about the recognition, accumulation, classification and allocation of cost information. Management accounting by its name indicates that it serves management by providing information for decision making. Cost information is of course information that is very important to management but there is a much wider information scope in management accounting.
Application Of Information
The information provided by the two types of accounting also provides us with another difference between cost accounting and management accounting. Cost accounting information is for the most part used for controlling cost within a business and keeping it on budget. Management accounting, on the other hand, provides information that assists management on a strategic and operational level in planning, organising, coordinating and controlling resources. Management accounting information has much wider applications than cost accounting information.
Type Of Information
Another distinct difference between cost accounting and management accounting is the type of information that is derived from them. Cost accounting information almost completely quantitative. Naturally, costs are measured in monetary terms and hence the output information is quantitative. Management account provides both quantitative and qualitative information. Management decisions are not comprised solely of quantitative input and some qualitative information is required in management accounting.
Scope Of Information
Cost accounting is concerned with matters of cost alone. Management accounting has a much wider scope which includes elements of financial accounting, internal control, tax accounting, budgeting, forecasting and performance management. Cost accounting has a much narrower scope however it does not mean that it is not deep. It is a very focused discipline. The difference between cost accounting and management accounting scope is in the wider scope of management accounting.
Cost Accounting Is a Sub-Set Of Management Accounting
By now it is evident that management accounting is a very wide accounting branch that has many sub-branches within it. Cost accounting happens to be one of the sub-branches contained within management accounting as a discipline. This means that management accounting will often rely on information from cost accounting to complete some of its functions. This is a notable difference between cost accounting and management accounting.
Another difference between cost accounting and management accounting is the degree to which the information provided by the two are subject to statutory requirements. Companies are required to audit their financial accounts to prove that information contained in them is accurate and reliable. Cost accounting information goes into financial accounts and therefore cost accounting information is subject to statutory requirements. This includes what type of costs can be included in product cost as an example. Management accounting information, on the other hand, forms no part of the financial statements and is therefore not ordinarily subjected to audit scrutiny.
The Dependence of management accounting on information from cost accounting is another difference between cost accounting and management accounting. Cost accounting takes information from original records such as invoices and receipts. Cost information is then derived from these records and ready for use. Management accounting relies on information from cost accounting as one of the many inputs it uses. Management accounting, therefore, relies on information from cost accounting while cost accounting has no reliance on management accounting.
Basis Of Decisions
Cost accounting provides historical information for decision making while management accounting provides both historical and predictive information. Cost accounting mostly looks backwards using historical cost data to perform its functions. This is seen when we compute items such as product component costs. Management accounting provides information that looks ahead such as budgets and forecasts such as the break-even analysis. The time direction of the information produced constitutes another difference between cost accounting and management accounting.
The final difference between cost accounting and management accounting that we can draw is in the intended users of the information. Through our exploration of the differences between cost accounting and management accounting, we have revealed that cost accounting information is used by management, shareholders and other external parties. Management accounting on the contrary only produces information for use by the management of the business. Cost accounting, therefore, has a wider intended user group than management accounting.
By interrogating characteristics such as the scope of information, type of information, statutory requirements, application of information and the intended user groups of the information we have successfully illustrated the key differences between cost accounting and management accounting.