What Is Accrual Cost Accounting?

Accounting is a process or system a company uses to track the financial information generated from their company's operations. Accrual cost accounting is a combination of two accounting issues. Accrual accounting is a method of recording transactions, while cost accounting focuses on the company's production costs.

Defined

Accrual accounting records financial transactions as they occur; cash changing hands between parties is not a factor for this method. Cost accounting records and reports figures associated with raw materials, production labor and overhead. This information is important because it helps a company price consumer goods and services.

Purpose

Using accrual cost accounting creates a better trend of financial information. Business owners and managers can review historical information and see when costs went up or down based on volume, consumer demand or other economic factors.

Considerations

Cost accounting is a subunit of management accounting. Therefore, cost accounting does not necessarily need to follow national accounting standards to calculate production costs. This allows companies some flexibility when tracking this financial information.

References

• All Business: Cash vs. Accrual Accounting Methods
• Investopedia: Cost Accounting