Similarities and Differences Between Cost Accounts and Financial Accounts



Cost accounts and Financial accounts which are kept quite separate in a business concern, are similar in certain respects while in some other respects these differ from each other. The variousĀ  similarities between cost accounts and financial accounts may be given as follows:

(i) Both cost accounts and financial accounts are maintained on the basis of Double Entry System of Accounting.

(ii) Recording of transactions, both under cost accounting system and financial accounting system, is made on the basis of common vouchers, invoices and documents.

(iii) Both cost accounts and financial accounts disclose the profit or loss of the business.

(iv) Both cost accounts and financial accounts involve the process of matching the costs and revenues of the related activity for the current period.

(v) Both the accounting systems contain the record of direct costs and indirect costs.

(vi) Both the accounting systems enable the business concern to compare and reconcile the trading results.

(vii) Both the accounting systems assist the management in formulating the future business policy and making various managerial decisions.


Although, both cost accounts and financial accounts are prepared on the basis of common principles and common vouchers and documents, they differ from each other on the following points:

(i) Financial accounts are very comprehensive in nature and cover all business transactions while cost accounts cover only the transactions relating to the manufacturing and sale of products and services.

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(ii) Financial accounts deal with all items of expenses, losses, income and gains but cost accounts deal with only those items of expenses which enter into the cost of production.

(iii) Financial accounts do not contain analysis of expenditure according to elements, functions, behavior, departments or products. Cost accounts record expenses by elements, functions, variability, departments, etc., to study them analytically.

(iv) Financial accounts do not present the accounting information in a well-classified and analyzed form so as to disclose the cost per unit at all stages. Cost accounts present well-classified and analyzed details of expenses to disclose per unit cost at all stages of production.

(v) Financial accounts disclose the overall profitability of the business whereas cost accounts deal with product-wise, job-wise, department-wise and process-wise profitability.

(vi) Financial accounts deal with facts or actual figures alone. Cost accounts deal with facts as well as estimates as a result of which the results of cost accounts do not always tally with those of financial accounts.

(vii) Financial accounts do not disclose information relating to wastage of materials and the loss of man-hours and machine-hours. Cost accounts, on the other hand, contain full information relating to all types of wastage incurred during production.

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(viii) The maintenance of financial accounts is compulsory in business while cost accounts, though important and advantageous, need not be maintained compulsorily.

(ix) Financial accounts cannot be incorporated in cost accounts whereas cost accounts may be incorporated in financial accounts.

(x) Financial accounts do not provide any means to measure the efficiency and to exercise control over costs. Cost accounts develop standard costs against which actual costs can be compared and reasons for variances may be enquired into for taking corrective action.

(xi) Financial accounts fail to guide the businessman in the fixation of selling prices and calculation of estimates. Cost accounts furnish detailed cost information at different levels of production which forms basis for determining selling prices and calculating the tender price.


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