Difference between management accounting and cost accounting

Difference between Management Accounting and Cost Accounting – B.Com/ BBA/M.Com/ BBA Notes

DIFFERENCE BETWEEN MANAGEMENT ACCOUNTING AND COST ACCOUNTING

In this post you will study Difference between Management Accounting and Cost Accounting. Study and make the proper notes grabbing full understanding of this topic.

MANAGEMENT ACCOUNTING

Management Accounting is the Identification, Measurement, Accumulation, Analyses, Preparation, Interpretation and Communication of information that assists managers in fulfilling organizational objectives. Management accounting is all about supplying right information to right people at the right time.

American Accounting Association has defined management accounting as:

“Management accounting is the application of appropriate techniques and concepts in processing historical and projected economic data of any entity to assist management in establishing plans for reasonable economic objectives in the making of rational decisions with a view towards these objectives”.

COST ACCOUNTING

Cost Accounting is an art or process of recording, analysing and classifying of expenditure for the purpose of product costing or service costing, ascertainment of profitability, operational planning and cost control. It is a forward-looking approach which is related to the recording, analysing and classifying of expenditure with the objective of ascertaining the total and per unit cost of product or service.

ICMA (Institute of Cost and Management Accountants) defined Cost Accounting as “Cost accounting is the process of accounting for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centres and cost units. In its widest usage, it embraces the preparation of statistical data, the application of cost control methods and ascertainment of the profitability of activities carried out or planned.”

RN Carter defined Cost Accounting as “It is a system of recording in accounts the materials used and labour employed in the manufacture of certain commodity or on a particular job.”

Difference between Management Accounting and Cost Accounting
Basis of DifferenceManagement AccountingCost Accounting
ScopeThe scope of management accounting is wider than that of cost accounting and uses data from both cost and financial accounts and supplies the information to management for managerial uses.Cost accounting is having narrow scope. It is limited only to those transactions which are related to cost of production. So, scope is only limited to cost.
ObjectiveThe main objective of management accounting is to use accounting information to take various managerial decisions and to maximize the value of the firm.The main objective of cost accounting is to sustain the cost of production and to control the cost.
Tools UsedManagement accounting uses all the tools used by the cost but as its role is wider than cost accounting it uses another tools like ratio analysis, fund flow analysis, operations research, statistical methods to analyse and interpretate the data for use of management.Cost accounting in order to control the cost uses various techniques like standard costing, marginal costing, budgetary control and unit costing etc.
MethodAs management accounting is for the use of the management. The users interpret the results and apply that methods and procedures for preparation of accounts which suits their needs.Cost accounts are prepared according to some set of rules and standards.
Double entry systemIt is not applied.It is applied in cost accounting.
Accounting PeriodManagement accounting is for the use of the management. The users interpretate the results and apply that methods and procedures for preparation of accounts which suits their needs.In cost accounting accounts are prepared normally for current year activities and no futuristic approach is there.
EvolutionManagement accounting has taken birth from the limitation of the cost accounting. As costing only highlights on the cost and management accounting is a continuous watchful process to collect the data available from cost and financial records and assess the need for their revision and improvement.Cost accounting has taken birth due to limitation that financial accounting fails to predict the information relating to cost aspects of particular product or a product line.
Variance Analysis The management accountant will not only make variance analysis but also suggest the ways and means for improving the operations.The cost accountant will compare actual performance with standard performance and report to management for necessary actions.
Status in hierarchy levelManagement accountant is placed at higher hierarchy level.Cost accountant is placed at lower level in hierarchy.
DependenceManagement accounting system is dependent upon the information supplied by cost accounting so it cannot be installed without it.Cost accounting system may be installed without management accounting.

CONCLUSION

To sum up, management accounting is concerned with a system as a whole. The function of management accountant is inevitable extension of that of cost accountant. The role of cost accountant is not complete as long as he extends his activities to areas of management accountant.

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