Generally, accounting is divided into two main types which are financial accounting and cost accounting, a part of managerial accounting. Financial accounting is used for external purposes which consists of recording all financial transactions according to generally accepted accounting principles, or GAAP.
ALSO READ: Differences between Accounting and Bookkeeping
On the other hand, Cost accounting is used internally and is more focused on improving the company's performance. While these two types of accounting are different in so many aspects, they share several similarities which we are going to discuss in this blog post. Both Cost Accounting and financial accounting have similar terminology and both use information provided through the financial reports of a business
Both Cost and financial accounting use the same basic accounting terminology. For example, both cost accounting and financial accounting base information on debits and credits. Both also make reference to a general ledger; which is a book that tracks all the financial transactions in various accounts in a business organization. Both types of accounting separate accounts into categories consisting of assets, liabilities, equities, revenues and expenses.
ALSO READ: History of Accounting
Financial accounting is often used to produce reports which include financial statements, including the balance sheet, income statement and statement of cash flows. This information is given to stockholders, investors and lending institutions. With cost accounting, the documents produced through financial accounting are used by people who work within the company to make internal decisions for the good of the business. The use of financial statements is vital to cost accounting and financial accounting. The people that use the information can tell the difference.
Cost accountants and financial accountants are both interested in historical information about a company. The company provides the information through financial statements. The main reason why this information is important is because it is used to make future decisions for the company. With both the cost and financial accounting, future plans are established based on historical information. Some of them includes forecasting, creating budgets and planning future projects.
ALSO READ: Types of Accounting
Financial accounting and cost accounting both focus on ways to improve the performance of company. Financial accounting, however, centers on an entire company, while cost accounting generally divides performance by division, location or region of a business. Financial accounting focuses on the performance of the company by monitoring closely the accounts payables and accounts receivables. Cost accounting also monitors performance issues by viewing these accounts and other data which includes the cost of goods sold.