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Recognizing the Difference Between Cost Accounting And Management Accounting

Generally, the terms management accounting and cost accounting are considered to be interchangeable. This is accepted since the two fields are interrelated. Moreover, one is a part of the other. Besides this, cost and management accounts are utilized in the same context. The information available from cost accounts are needed by the management also, especially for stock valuation, order assessment and pricing decisions. Technically speaking, the cost function is complementary to the management function. However, one must not confuse between these two divisions of accounting. So what is the difference between cost accounting and management accounting?

Management accounting incorporates all the levels and functions of management. Cost accounting is more specifically related to cost determination, budget creation and variance analysis. Moreover, the data utilized for costing could be both of financial and non-financial type. However, the management accounts utilize the information provided by costing and encompass financial as well as non-financial data.

In general, management information needs less detail as compared to cost information. This is due to the fact that management reports are summarized and sourced through different functional areas on the basis of the levels/needs of management. Moreover, management data can include specified knowledge and skills while cost accounting utilizes specified techniques.

Cost accounts offer a large amount of information and data for management accounting. Moreover, the cost accounting function/department is involved in collection of cost data, analysis of cost behavior, preparing financial statements and attributing costs to units/objects/departments. It is usually assumed that costing deals only with costs; it also involves treatment of profits and revenue.

In the absence of cost function, control element would become non-functional. Costing enables managers to draw comparison between actual costs and budgeted costs. This facilitates decision-making and rectification of irregularities. Due to a cross-functional nature, cost accounting is applicable to other departments besides production or manufacturing. Therefore, it is useful to all the units or departments.

Due to the difference between cost accounting and management accounting, it is more appropriate to refer to them collectively as Cost and management accounting. The term highlights the relation between these two areas but simultaneously recognizes the difference between them also. Both cost accounting and management accounting are useful for planning, control and decision-making purposes.