accounting services, financial accounting, cost accounting

6 Major Differences Between Cost Accounting and Financial Accounting

Cost accounting and financial accounting are two of the most used accounting methods, but there are significant differences between them. Cost accounting applies costing methods and techniques to products and processes. Financial accounting focuses on the accurate presentation of a company’s financial statements. The purpose of financial accounting is to make a business more profitable. It also assists in increasing its transparency. Cost accounting’s goal is to reduce an organization’s costs.To go into more detail, here are six major differences between financial accounting and cost accounting:

1. Cost accounting calculates the expenses related to given products within an organization.

For a business selling products A, B, C, and D, this method will be useful in determining the labor, materials, and other costs expended for each product. The financial accounting method helps better understand how profitable a company is through its financial statements. If a given company realizes $200,000 in sales with a cost in sales of $100,000, the company has achieved a profit of $100,000.

2. Financial accounting focuses on the proper presentation of the business’s performance.

Cost accounting’s focus is on efficiency. Calculating the sales costs of products allows companies to create solutions to cut expenditures. It is also a great tool to increase efficiency.

3.  Financial accounting is a rule for all organizations.

Cost accounting is only mandatory for manufacturing companies.

4. Most organizations’ financial activity is recorded at the end of a given financial period.

Note that the cost accounting method is performed as a short interval of time, rather than per any particular period.

5.  Cost accounting is based on estimation.

As opposed to financial accounting, which is based on actual data. The per-unit cost of sales in cost accounting is determined by estimating the related costs.

6. The tools used in cost accounting and financial accounting are also different.

While financial accounting makes use of financial statements, journals, ledgers, and trial balances, cost accounting uses tools such as cost of sales, product margin, and sales price.

There are significant differences between these two methods of accounting, but there are also important benefits to each approach, which can all help create better businesses. Additionally, both methods can be combined as a tool to develop organizations.

 The Balance Sheet is a bookkeeping and accounting services firm located in West Palm Beach, Florida. It was created by Maxine Taylor out of a need to help her clients make better projections and financial decisions for their businesses.


  • “The difference between cost accounting and financial accounting.” AccountingTools. Accessed January 06, 2018.
  • “The Difference Between Cost Accounting and Management …” Accessed January 6, 2018.,5059.1.
  • Anjali «╬♥Áńĵáĺℐ♥╬«, — Follow. “Difference between financialaccounting and cost accounting.” LinkedIn SlideShare. February 18, 2017. Accessed January 06, 2018.

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