Difference between cost accounting and financial accounting

Companies mainly use two types of accounting: financial accounting and cost accounting. Both have a very high importance and are very useful in the management of a company.

Difference between cost accounting and financial accounting

They present relevant differences between them that we are going to see below, separated in different aspects. We are going to see the differences between cost accounting and financial accounting according to its objective, its users, its periods, its regulation, its unit of measurement and its accuracy.

Differences according to the objective

First, we must know what the objective of each one is.

Cost accounting is aimed at obtaining the cost of products, while financial accounting is aimed at obtaining financial statements that show the equity, financial situation and results of a company.

Difference according to users

As we can see, they are very different objectives and, therefore, each accounting system is aimed at different users.

Analyzing costs allows obtaining an internal information system that is only accessible and useful for company personnel.

On the other hand, the financial statements obtained through financial accounting are intended for reading by internal and external users such as banks, investors or public administrations, which can access them by reading the annual accounts of the company.

Difference according to periods

The periods of both accounts are different.

If we think of a company’s balance sheet, it is a “picture” of the financial situation on a specific date (usually December 31) that reflects what has happened during that year or before. That is, it shows past events.

In contrast, cost accounting prevents events that have not occurred and is aimed at future-focused decision making.

Differences in regulation

In terms of regulation we find another important difference.

Financial accounting is mandatory and is regulated by the General Accounting Plan, while cost accounting is voluntary and is not regulated by any regulations.

Differences for accuracy

Since there are many variables that influence the cost of a product (expenses, manufacturing time, costs of different types, etc.), the information obtained on the cost of a product is not always exact, and is probably an estimate.

On the contrary, financial accounting is the reflection of real transactions of a company so it has a very high accuracy.

Differences per unit of measure

Finally, we find another difference in the units of measurement used.

In cost accounting, a standard measure is not used, but each cost calculation is adapted to the type of product (machine hours per product, cost, labor hours or units produced, etc. can be used) . Financial accounting, on the other hand, is rigid in this regard and presents the information in the monetary unit of each country.

In summary

As a summary, we are going to synthesize all the commented information in a table:

Cost accounting Financial Accounting
objective Analyze the costs. Know the economic-financial situation of a company.
Users Internal Internal and external.
Periods Any period of time. Future events. 1 year. Past facts.
Regulation Without regulation. Voluntary PGC. Mandatory
Accuracy No, estimates. Yes, exact.
Unit of measurement Several. Monetary unit.