A Level Accounting: Introduction to costs and management accounting

• All Accounting can generally be divided into two branches:
  • Financial Accounting
  • Cost and Management Accounting

Financial Accounting

• involves the recording the financial transactions of an organisation
• And summarising them in periodic financial statements for external stakeholders who want to analyse and interpret the financial position of the organisation
• Typical external users of financial statements include shareholders, potential investors and the government among others
• The main duties of a Financial Accountant include:
  • maintaining the bookkeeping system of the nominal ledger,
  • the payable control account,
  • receivables control account and so on
  • as well as preparing financial statements as required by law and accounting standards
• Often the information produced by financial accountant is insufficient for the needs of management decision making
• This is usually because this information is historical and is format is dictated by rules and standards

Cost and Management Accounting

• Managers often need detailed accounting information in order to aid their decision making
• Managers need help in carrying out the tasks such as coordinating, leading, planning, organising and controlling
• Often for example managers want to know the profit/loss of each product
• To be able to get this information they need to know  details for each cost, revenue, profit and investment in the organisation
• This type of information can only be obtained via cost accounting and management accounting
• The main aim of cost and management accounting is to provide vital information to those in management so as to aid their decision making while financial accounting is concerned with providing a report of past performance of the organisation for various stakeholders
• While both cost accounting and management accounting are meant to help managers in their everyday tasks there are not the same thing
• Cost accounting is a system for recording data and producing information about costs for the products  produced by an organisation and/or the services it provides
• It is also used to establish costs for particular activities
• Management accounting on the other hand encompasses more than just cost accounting
• Just to be clear cost accounting is a part of management accounting
• CIMA defines management accounting as:
• The application of the principles of accounting and financial management to create, protect, preserve and increase value for the stakeholders of for-profit and not-for-profit enterprises in the public and private sectors
• Management accounting includes tasks such as standard costing, budgeting, investment appraisal and cost volume profit analysis in addition to cost accounting

NB You can find a table showing the differences between Cost and Management Accounting and Financial Accounting here

To access more topics go the ZIMSEC Advanced Level Accounting page

To access more topics go to the Cambridge AS/A level page