NATURE OF COST ACCOUNTING
Cost Accounting is an art or process of recording, analyzing 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, analyzing and classifying of expenditure with the objective of ascertaining the total and per unit cost of product or service.
The following points are the nature of cost accounting:
A BRANCH OF ACCOUNTING
Cost Accounting is a branch of accounting that deals specifically with the determination of costs of the products and services being manufactured. It deals with those techniques, tools, processes and methods which are associated with the determination of costs, their classification and analysis. It is an accounting which is done internally to the organization and is optional.
BRANCH OF KNOWLEDGE
It is an important branch of knowledge and emerges as a discipline in itself. It is an organize body of knowledge which has its own tools and techniques like
- Job costing
- Process costing
- Standard costing
- Marginal costing
- Variance analysis
- Unit costing
- Batch costing
- Activity based costing
- Budgetary control
- Contract costing etc.
COST ACCOUNTING IS SCIENCE AND AN ART
Cost accounting is both science and an art but not a perfect science.
It is science as it is a body of systematic knowledge relating to not only accounting but also to a wide variety of subjects such as law, office practices, data processing, production and material control etc.
It is an art as it involves the use of the skills and experience of cost accountant in collection, classification and analysis of the costs of the products.
COST ACCOUNTING IS A PROFESSION
Cost accounting is not a pure profession by nature but it is emerging as a profession. The set up of various specialized institutions like
- Institute of Cost and Management Accountants in UK
- Institute of Cost and Work Accountants in India
Is a way long to make cost accounting as a profession.
BASED ON DOUBLE ENTRY SYSTEM
Cost accounting is based on the double entry system. It is follows the rule of ‘every debit has equal credit.’ All transactions that are recorded in the cost accounting records have two fold aspect.
A PROCESS IN NATURE
Cost accounting is a process in nature. It is a process that involves the following steps:
- Identification of costs
- Recording of costs
- Classification of costs
- Analyzing the costs
- Interpreting the results
- Communicating the results to the management.
It is a forward looking approach that aims at improving the efficiency of the manufacturing activities.
TOOLS AND TECHNIQUES
Cost accounting has its own tools and techniques of standard costing and variance analysis, contract costing, process costing, job costing, unit costing, batch costing, marginal costing etc. cost accounting make use of such techniques in preparing the accounting records with full accuracy and also fix the standards of performance for future.
INTERNAL ACCOUNTING
Costing accounting is an internal accounting. There is no compulsion on the organization to prepare the cost accounting records and publish them. It is totally option to prepare the cost accounting records. These are prepared to provide for the internal use by the management and manufacturing departments.
