Introduction to Costing and Management Accounting

In: Business and Management

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Lecture 1
Introduction to Cost and management Accounting
Accounting is divided into two parts: (i) Financial Accounting (ii) Cost and Management Accounting
Financial Accounting is concerned with preparing financial reports, for External users/Stakeholders . Egs of such reports are Statement of P&L and other Comprehensive income, Statement of changes in equity, SOFP, Statement of Cash Flows, etc based on transactions during a past financial period.
External Users/ Stakeholders include: shareholders/owners, lenders, tax authorities, regulators and others. Anyone who has a vested interest in the business is a stakeholder: customers, suppliers, employees, and communities.
Financial Accounting reports follow a common base line in order for them to be comparable to users: GAAP, and IFRS.
Cost and Management Accounting
Cost accounting is central to management accounting. According to Kohler it is: ‘…That branch of accounting which deals with the classification, recording, allocation, summarisation and reporting of current and prospective costs.’(Kohler). Cost accounting is concerned with setting up budgets, and determining the actual cost of operations, processes, departments or products and the analysis of variances and profitability.
Managers use cost accounting in order to support their decisions whose general aim is to cut costs and improve profits.
Cost and management accounting reports are for internal use of the business for taking future decisions and therefore not exposed to outsiders.
Cost and management accounting reports need not follow accounting standards and therefore what to compute is decided pragmatically, i.e. based on the needs of management.
Cost Accounting Versus Management Accounting.
In modern days, the difference between cost accounting and management accounting is reducing, as both involve the same plethora of activities.…...

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