Lecture: 1
Chapter – 1
Management Accounting: An
overview
(General idea)
Business Studies Department, BUKC
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Financial Accounting V/S Cost accounting
• Financial Accounting:
Financial Accounting is that part of accounting in which we
record the business transactions as per accounting cycles and
make the financial statements. Financial statements provide
information regarding the profitability and financial position of
the company to the external parties for decision making.
Financial statements include Income statement, stockholders’
equity, balance sheet, and statement of cash flow.
External parties include stockholders, suppliers, debtors, banks,
government agencies, etc.
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• Purpose of financial statements:
The main purpose of financial statements is to
provide information about the performance of
the company over the period, company’s
financial position on a particular date, reasons
of changes in owners’ equity over the period,
and cash flows of an enterprise over the period
to outsiders specially for their decision making.
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• Cost accounting:
Cost accounting is that part of accounting
concerned with the determining and
accumulating the cost of products or processes,
services or activities.
Example- Standard costs and V/S actual costs of
operations or products, Job order wise costs,
determination of process costs, and
establishment of Budget, etc.
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• Cost Accounting cycles:
In cost accounting, we first calculate the raw material
cost. Then, we calculate the direct labor cost. Then,
we calculate the factory overhead cost. All these cost
are added. A desired profit margin is added on total
cost. An estimated sale price is calculated.
whole controlling cycle will also be relating to control
the cost of raw material, direct labor cost and factory
overheads.
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Sources data of Financial Accounting and Cost
Accounting
Sources data of Financial Accounting:
The following are the main sources of financial
accounting data:
Purchases Invoices, sales invoices, supporting
documents relating to different transactions, such as,
bank statements, sales order, purchase order, etc.
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• Sources data of Cost Accounting data:
The following are the main sources of cost accounting
data:
Invoices regarding purchases of materials, Requisitions
regarding issuance of materials to departments,
Reports of time studies, machine tool requirements,
records of workers, bill of materials, list of operating
and planning schedules, capacity studies, statistics
regarding floor space floor space, power consumption
etc.
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Any Questions?
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Thanks