A Brief Understanding Of the Cost Accounting Concepts
The process of cost accounting can be described as a way to determine the actual costs of the operations that the company is involved in. It is a process of accumulating, analyzing, measuring, interpreting as well as reporting the cost information. It is only meant for the internal managers and the decision makers in the company. It is really important to understand that the cost accounting plays a very crucial role in the maintenance as well as the future growth of the company. There are various cost accounting concepts that are utilized by the companies in order to get a clear picture of the state of their finances as well as information about all the resources of the company.
Some of the concepts of the cost accounting that separates it from the standard accounting are:
- Accounting for costs rather than outlays
- Accounting for overhead and indirect costs
- Accounting for costs according to lifecycle of the product
- Accounting for the past and the future outlays
- Accounting for the hidden costs and externalities
- Accounting for costs rather than outlays: An outlay refers to the expenses that are incurred while purchasing or using a resource. The cost means the spreading of the amount spent over the entire lifespan of the resource. As the time passes, the value of the resource starts depreciating.
- Accounting for the overhead as well as indirect costs: The overhead as well as indirect costs might include administrative support, data processing, legal services, billing as well as purchasing.
- Accounting for costs according to lifecycle of the product: Environmental costs that are the indirect costs include the full range of costs throughout the life cycle of the product. There are many other similar costs like this
- Accounting for the past and the future outlays: Past costs are the initial investments necessary to put into operation vehicles, facilities, and the equipment. Future outlays might include costs like facility closure and post closure care, equipment requirement and the post employment health and retirement benefits.
The cost accounting concepts are the methods that are used by the cost accountants in order to get better results from their efforts.