Accounting is the system of recording, reporting, classifying and reporting of financial data for use by different end users. Cost accounting and intermediate accounting principals have different audiences in mind. The two separate focused accounting subsets are targeted to answer separate questions, concerns and have different objectives. These two separate accounting specialties even have their own focus as it translates into professional accounting staff and career directions.
Cost Accounting Audience
Cost accounting is an internally focused accounting process. Cost accounting focuses on the costs of doing business, the cost of production or the cost to operate a specific department. It is used most often in manufacturing operations to determine the costs of producing a product. It breaks the costs into categories including fixed and variable costs. Fixed costs are overhead related. Variable costs include machine hours, man hours and raw material consumption. These costs are examined so that the business can establish a reasonable price for their product. Cost accounting is also used in the creation of departmental budgets. In many businesses, the only way to increase profit is to decrease cost. Cost accounting is critical to help determine where cost cutting can occur. Therefore, cost accounting is a managerial focused function directed toward internal users.
Intermediate Accounting Audience
Intermediate accounting is simply the middle material found in financial accounting. Middle material meaning the accounting principles studied after the initial entry level materials with which a new student begins. Financial accounting is an outward-focused accounting process. The audience is the public, investors, other businesses and lending institutions. Financial accounting is the process of reporting profits and losses. Banks, vendors and investors need this information to ensure that they are following their own risk policies by doing business with said company. This information will inform them as to the company’s ability to pay its debts and to continue operating.
Future vs. Immediate
Cost accounting is used to determine if budgets are on target and if the budget is realistic. It takes many factors into consideration such as the positive and negative variances from the baseline or budgeted amount. The variance is the measure of how far a dollar figure is over or under the budgeted dollar amount. Positive variances mean that there is a cost surplus or reduction in cost per unit of product manufactured. A negative variance means that more money was spent than budgeted. Cost accounting is a form of managerial accounting and is used to create new budgets or budget amendments to carry into future business periods. The cost accountant is always thinking ahead. Financial accounting -- intermediate accounting -- focuses on providing a snapshot of the businesses health at the time of the report. It does not factor future periods into account. It simply reports on a business’s position at that moment or some past designated period.
Accounting regulation is imposed on companies to standardize the ways in which companies report their financial successes or failures. A standard is important in comparing two or more like companies. The Generally Accepted Accounting Principles (GAAP) establishes guidelines for recording, classifying and reporting all financial transactions. Cost accounting does not fall under GAAP. since it is not used to report on a company’s financial condition at a certain point in time. It is meant for the internal eye only.