Wednesday, January 18

Purposes Of Management Accounting And Financial Accounting:Boundaries of Cost Accounting

          Where does "cost accounting" fit within the above framework? In its broadest sense,cost accounting has the same three major purposes as those deScribed above. However, its third purpose, costing products for inventory valuation and income determination, simultaneousiy fulfills the demands of outsiders and those of management for such information. so, when viewed in this way, cost accounting is management accounting, plus a small part of financial accounting to the extent that its product costing function satisfies the requisites of external reporting. 
          Originally, the label cost accounting referred to the ways of accumulating and assigning historical costs to units of product and departments, primarily for purposes of inventory valuation and income determination. Today, cost accounting is generally indistinguishable from management accounting because it serves multiple purposes. Most fundamentaly, cost accounting now refers to the gathering and providing of information for decision needs of all sorts, ranging from the management of recurring operations to the making of nonrecurring strategic decisions and the formulation of major organizational policies. As in the past, cost accounting also helps fulfill the legal requirements of reporting to stockholders, creditors, government agencies, and other external parties. 
          We need not be greatly concerned with the boundaries of cost accounting. The major point is that the focus of a modern cost accounting system is on helping managers deal with both the immediate and the distant future. Its concern with the past is justified only insofar as it helps prediction and satisfies external reporting requirements.

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