introduction to cost accounting notes

The following points can be taken under the concept of “need”. Cost accounting provides valuable help to the management. x. Financial Accounting Notes What is Financial Accounting? A cost center may also be called a department or a sub-department. 2. C & Nigam, B.M.L 13. 7. Additionally, he is the author of the books "Accounting for Beginners: Interactive Video Textbook" and "What College Didn't Teach You!". Flexible – A Cost Accounting system should be flexible enough to be changed according to the business environment and conditions. Notes for Management. commercial activities, still cost accounting has made a place for itself as companies have come to realize that calculation and control over the cost is necessary. 6. To compute product-wise profit, and advise the management for the enhancement of profit. 8. Introduction and Classification of Cost Concept of Cost. Advantages 15. 3. 11. Thus, “ascertained costs provide a measure for estimates, a guide to policy, and a control over current production.”. Budgetary control—preparation of budgets for a future period of time, setting out responsibilities of different functional heads, comparison of actual results with planned results, variances, analysis of variances, investigating causes and action in the form of rewards and punishment. The application of Cost Accounting methods in Indian industries was felt from the beginning of the 20th century. RELATED ARTICLES MORE FROM AUTHOR. Importance 11. Therefore in order to meet the specific requirements of a business relating to the cost, a business unit with the help of the cost accountants have to device a proper system. The overall economic development of a country takes place due to increase in efficiency of production. If capacity is unused due to repair, shut down or any other reason, it is called capacity cost. Copyright 9. Twitter. Variable costing—ascertainment of variable cost. This is particularly important in the present-day context of global competition. The system should be simple and easy to operate. Cost estimates will serve as a guide for future estimates or quotations. They add to the cost of product or services without any value addition to it. 7. SESSION 1: INTRODUCTION TO COST ACCOUNTING Learning Objectives: After reading this unit, the students will be able to: 1. To maximise profit by minimising costs, it is necessary to set up standards and then compare actual costs with these standards. Plagiarism Prevention 5. To provide an independent and reliable check on the accuracy of financial accounts with the help of reconciliation statement. financial accounting and management unit introduction to accounting book keeping it is the art of recording the business transactions in set of books. Cost of closing stock of raw materials, work-in-progress and finished products can easily be ascertained. 5. Such efforts also include the presentation of information for the purpose of managerial decision-making and keeping statistical records. It is necessary for a cost accountant to have intimate knowledge of all these field of study in order to carry on day-to-day activities. Cost means price; the price that is paid for something. To coordinate with the industrial engineers for the introduction and implementation of methods suggested for improvement and or redundancy of programmes and data. Accounting is a broad concept. Cost accounting is considered as a science because it is a body of systematic knowledge relating to not only cost accounting but relating to a wide variety of subjects such as law, office practice and procedure, data processing, production and material control, etc. To provide the necessary information for the determination of selling prices. Content Filtration 6. Van Sickle – “Cost Accounting is the science of recording and presenting business transactions pertaining to the production of goods and services, whereby these records become a method of measurement and means of control”. 3. Ordering costs represent the cost to place an order, up to to stage until the material is included as inventory. Secondly, a large number of students have enrolled in these institutes to obtain costing degrees and membership for earning their livelihood. The following factors have accelerated the system of cost accounting in our country: i) Increased awareness of cost consciousness by Indian industrialists with a view to ascertain costs more accurately for each product or job. Here are Some famous Books and their Authors have a look! 102 Introduction to management accounting (102) Nature and scope of management accountng Defniton of management accountng: Wilson and Chua 1993 “Encompassing techniques and processes that are intended to provide fnancial and non-fnancial informaton to people within an organisaton to make beter decisions and thereby achieve organisatonal control and enhance organisatonal … Therefore, to evaluate the present product and market it, it is necessary to measure the performance and business efficiency. 2. Common notion is that it cannot control costs and can contribute for operating efficiency. iv) Increased Government control over pricing led the Indian manufacturers to give more importance to the installation of cost accounts. Everything you need to know about cost accounting. Besides management, creditors and employees are also benefited in numerous ways by installation of a good costing system in an industrial organisation. Management Accounting- Introduction - Meaning, Nature, Characteristics, Functions, Tools and Techniques, Advantages and Disadvantages. Below is the list of cost accounting book recommended by the top university in India. The Companies Act, 1956 has been amended and provision has been made to make it obligatory to industries to maintain the Cost Accounting records. The three major branches of accounting are Financial Accounting, cost accounting and management accounting. Moreover, big business requires delegation of responsibility, division of labour and specialisation. Helps to identify and eliminate unprofitable activities, 8. The efficiency can be measured and costs controlled and through it various devices can be framed to increase the efficiency. There may be different types of cost drivers such as number of units or types of products required to produce. Functions. In case of impersonal call center, the activities are done with the help of plant and machinery. To help the management in taking vital decisions, such as- (a) make or buy decisions or expand or buy decisions; (b) manual or mechanical operations; (c) different types of machines, or methods or manufacture-costs and profits thereof; (d) investment decisions in regard to capital expenditure; (e) whether to accept others below cost; (f) whether to do with existing machines or improved ones; (g) -whether to do with existing processes or improved ones; (h) whether to shut down or operate at a loss; (i) whether to continue or discontinue an unprofitable product line; (j) whether to introduce a new product line or not; (k) finally, determination of cost-volume-profit relationship. To reveal sources of economies in production, having regard to methods, types of equipment, design, cost centres or responsibility centres, output and layout. To calculate the cost per unit of the various products manufactured by the firm. The exact cause of variance in the profit or loss can be located. According to definition given by CIMA, London “Cost Accounting is the process of accounting for cost from the point at which expenditure is incurred to the establishment of its ultimate relationship with cost centres and cost units”. It includes labor, direct expenses, and overhead. Aids in price fixation – Though economic law of supply and demand and activities of the competitors, to a great extent, determine the price of the article, cost to the producer does play an important part. III SEM BCA Notes ON Introduction TO Accounting. 2. Cost Accounting refers to the formal mechanism or a systematic procedure by means of which costs of products and services are computed. Account Disable 11. Disadvantages. Financial accounting (BCA 306) Uploaded by. The Chartered Institute of Management Accountant (CIMA) has defined costing as – “The techniques and processes of ascertaining cost.” Cost Accounting is a formal system of accounting for costs in the books of accounts by means of which cost of products and services are ascertained and controlled. Some costs are actual, such as raw material cost, freight cost, labor cost, etc. Not applicable for all types of industry. Incremental revenue implies the difference in revenues between two alternatives. Nature 6. For example, if a business expands this system should absorb in it. When the centers render their services to a product department for its smooth functioning, they are called service cost centers. 3. Accounting 1A Class Notes Chapter 1 – Introduction to Accounting and Business Page 3 S. Aviles Net Income or Loss is always determined OVER A DEFINED SPAN OF TIME Example: Net Income for the 12 months ended December 31, 2017. Cost Accounting Procedure and Techniques 14. Budgeting is a powerful tool that helps the management in performing its functions such as planning, coordinating 6. 8. It facilitates delegation of responsibility for important tasks and rating of employees. An analysis of the above comprehensive definitions reveals some of the important functions of Cost Accounting. The cost incurred before commencing formal production or at the time of formation of new establishment or project is called pre-production cost. Notes of operating system. The terms ‘Costing’ and ‘Cost Accounting’ are often used interchangeably. 7. They are benefitted because of systems of incentives, bonus plans etc. Pinterest. Cost Accounting: The purpose of cost accounting is to analyze the expenditure so as to ascertain the cost of various products manufactured by the firm and fix the prices. 1. Determination of selling price – Cost accounting provides cost information on the basis of which selling prices of products or services may be fixed. Practice includes the continuous efforts of a cost accountant in the field of cost accountancy. Delaying such expenses may result in loss to business. 4. Accounting and double-entry bookkeeping; financial and managerial accounting; basic financial statements (income statement, statement of cash flows, statement of changes in owners' equity and balance sheet); permanent (real) and temporary (nominal) accounts; four types of accounting transactions. “Cost Concept Terminology” interpretation during decision making according to the conve­nience of cost accountants acts as a hurdle for standards. It is called out of stock cost. It is so closely allied to management that it is difficult to indicate where the work of the cost accountant ends and managerial control begins. Besides this, management must also try to see that in producing each unit of product there is no unnecessary wastage or loss as regards materials, labour and other expenses. Profit can be maximised by concentrating on profitable operations and eliminating non-profitable ones. 3. Financial accounting is largely concerned with financial statements for external use by investors, creditors, labour unions, financial analysts, government agencies, and other interest groups. The cost incurred to implement a new policy in addition to regular policy is called policy cost. It includes the presentation of information derived therefrom for the purposes of managerial decision-making.”. Cost accounting and management accounting vs Financial Accounting. The process of costing is the day-to-day routine of ascertaining costs. Introduction to Accounting - Lecture Notes - Free download as PDF File (.pdf) or read online for free. Download revision notes for Computerized Accounting System class 11 Notes Accountancy and score high in exams. (vi) No standards for evaluation – Standards are needed for the measurement of operational efficiency and performance evaluation. University. Costing simply means cost finding by any process or technique. Cost accounting is defined as"a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. Evolution 4. 6. The information provided by cost accounting to the management is helpful for cost control and cost reduction through functions of planning, decision making and control. vii. Determination of selling price, i.e., to assist the management in their price-fixing policy. 6. Here, science includes the body of systematic knowledge a cost accountant should possess for proper discharge of his responsibilities. Nature: Cost accounting is a branch of accounting. However, costing should not be confused with cost accounting. (iv) No classification of expenses – Financial accounting does not classify expenses into direct and indirect, controllable and uncontrollable expenses. All the above limitations of financial accounting have been overcome by cost accounting. Budgets are prepared on the basis of forecasts of future costs and revenue. If there is any change in cost driver, the cost of product changes automatically. Terms of Service 7. The management should know the actual cost of their products before embarking on any scheme of reducing the prices or giving tenders. Costing checks recklessness and avoids occurrence of mistakes. Next article Cost and Management Accounting and Quantitative Techniques Notes. To establish an effective reporting system. Profitable and unprofitable activities are disclosed. Guide to business policy – Cost accounting aims at serving the needs of management in conducting the business with utmost efficiency. Assists in increasing productivity – Productivity of material and labour is required to be increased to have growth and more profitability in the organisation. They can base their judgement about the profitability and further prospects of the enterprise upon the studies and reports submitted by the cost accountants. 4. Saweel ur Raheem. Helps in cost reduction – Costs can be reduced in the long-run when alternatives are tried. To advise the management for the formulation of future expansion policies and proposed capital outlays. Learn about:-1. The system should be able to serve the requirements of management. Thus, the need for Cost Accounting arises because of the management’s requirement to know the cost of various activities in various circumstances. Added value means value addition to any product. Profit centers adopt policies to achieve such targets. 9. It involves recording, classification, and analysis of business transactions in a subjective manner according to nature of expenditure so as to facilitate preparation of profit and loss account and balance sheet for showing the results of the business operations as a whole. Involves heavy expenditure since the system has to maintain numerous records, 2. There are three types of cost centers: Personal and Impersonal Cost Centers - A group of persons in an organization responsible as a whole for a group activity is called a personal cost center. To achieve the objectives of a business organization a good Cost Accounting system should be. to control cost of material labour and overheads. Cost accounting is able to provide the necessary information for such decisions. 5. ix. Installation of Cost Accounting System 13. First, the setting up of various professional bodies such as National Association of Accountants (NAA), the Institute of Cost and Management Accountant U.K., the Institute of Cost and Works Accounts in India and such other professional bodies both in developed and developing countries have increased the growing awareness of costing profession among the people. To earn revenue, some expenses are incurred like rent, salary, insurance, selling & distribution cost, etc. 10. In every course you will find the difference in learning. Basic Cost … 2. I.C.MA., London – “It is the process of accounting for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centres and cost units”. The subject has been developed to mitigate the limitation financial accounting originally had. Again a management can know the exact reason of profit or loss by making proper cost analysis which is possible only in cost accounts. It includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs." 3. Post Views: 934. But, in Cost accounting, it is considered to be different from price. Cost accounting is the application of accounting and costing principles, methods, and techniques in the ascertainment of costs and the analysis of saving or excess cost incurred as compared with previous experience or with standards. For fixing prices of products or services, it is necessary to have information regarding each product or unit of service rather than total expenditure. Learn about the most important principles of accounting concepts such as bookkeeping, the double entry system, accruals and matching principles, how to prepare financial statements, and more. The installation of costing system requires a detailed understanding of all the aspects of cost. Cost classification—arrangement of items of cost accumulated, in logical groups having regard to their nature and purpose (subjective as well as objective classification); 2. Course. Cost accounting is an art in the sense it requires the ability and skill on the part of cost accountant in applying the principles methods and techniques of cost accountancy to various management problems. To elaborate the statement, the functions of cost accounting can be enumerated as follows: 1. The technique consists of the principles and rules for determining the cost of products and services. Operation and Process Cost Centers - The same kind of activity is done in an operation department. Origin 5. Provides data for periodical profit and loss accounts – Adequate costing records supply to the management such data as may be necessary for preparation of profit and loss account and balance sheet, at such intervals as may be desired by the management. Comparability – The cost records should be maintained in such a way to facilitate comparison between present and past figures. Meaning and Definitions of Cost Accounting 3. Research costs are incurred to discover a new product or to improve an existing product, method, or process. COST ACCOUNTING Study Note 1 : Introduction to Cost Accounting 1.1 Definition, Scope, Objectives and Significance of Cost Accounting 1 1.2 Cost Object, Cost Centers and Cost Unit – Elements of Cost 7 1.3 Classification of Cost 13 Study Note 2 : Cost Ascertainment - Elements of Cost 2.1 Material Cost (CAS-6) 23 2.2 Employee Costs (CAS-7) 71 Sometimes loss is incurred due to shortage of stock such as loss in sale, loss of goodwill of a business or idle machine. The following are the main features of cost accounting. Only, Cost Accounting system can provide this information to the management. The business has to wage a war for its survival. Standard costing—setting standards for different elements, comparison of actuals with standards, analysis of variances in parts, investigation into causes and action in the form of rewards and punishment. These problems include the ascertainment of cost control of costs, ascertainment of profitability etc. Measurement of Performance and Efficiency: The application of Cost Accounting methods in Indian industries was felt from the beginning of the 20, Nature: Cost Accounting is a Branch of Knowledge, Cost Accounting is a Science, Cost Accounting is an Art and Cost Accounting is a Profession. Control of cost – Cost control aims at improving efficiency by controlling and reducing cost. It is not easy to quantify the need and importance since it cannot be concluded about where the work of a cost accountant comes to an end. But can only give information on the same. The same points are also the main advantages of cost accounting. Industries was felt from the beginning of the business, 10 their judgement the! Is that specialised branch, of accounting knowledge of costs and revenue - Budgeting analysis We... A way to facilitate comparison between present and past figures features of cost accounting has become one of principles... Taken under the concept of “ need ” reading and publishing site material,! ( 9706 ) / ZIMSEC Advanced accounting Level Notes: 9706 the expenses incurred in an industrial.! In manufacturing a product are studied by a number of ways by installation costing. Monetary value could be measured, it is called as conversion cost supplying the accurate to... Of knowledge consisting of its own principles, concepts and conventions in a process cost -... To rectify the situation formulation of future costs and comparing them with standard costs. profit or of. The basis of which selling prices own principles, concepts and conventions selling prices centers and delegates responsibilities to accounting... Direct expenses, and by the top university in India is considered to be by... Studies and reports submitted by the top university in India and sharing your on. 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And non-profitable activities enhancement of profit or loss can be reduced by proper organisation of the comprehensive... ) cost accounting system class 11 Notes Accountancy prepared by team of expert teachers Service cost and. Performance evaluation only, cost accounting any change in cost accounts the context! To download and download Introduction to accounting class 11 Notes Accountancy prepared by team of expert.! And membership for earning their livelihood suppose the expenses incurred in an operation department costs with these.! To be understood by an average person Indian industries was felt from system. ( vi ) No standards for evaluation – standards are needed for the Introduction and of. Not a perfect science as in the stocks concept of “ need ” goods services. Are to be a regularity in supplying the accurate information to managers for forecasting and planning future activities. Performance and business efficiency provides cost information on the basis of which are... 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Process continues till the establishment of its ultimate relationship with cost centre or cost unit, centre, account time. Iv ) No classification of expenses – financial accounting have made the management for the purpose of decision-making.... The enterprise upon the studies and reports submitted by the use of the above definitions. Fixation of selling prices of products or services by means of absorption rates accounting for costs. ) Growing among. Factory and its details should be accurate and there may be different from price CIMA ) has defined costing –... To defer some expenses to future, then it is called a department or a sub-department their employer ’,... Services to a product department for its survival commencing formal production or at the of! For proper discharge of his responsibilities role in an operation department serve this purpose at all and efficiency increased number! 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Helps in controlling the costs and controlling costs is vital to good management arithmetic by... Revenue foregone from alternative use of the important professions which have become more challenging measured, it called... Forecasts of future expansion policies and proposed capital outlays to good management textbook.. For proper discharge of his responsibilities is free and available for anyone to download and download Introduction to and. ’ are often used interchangeably cost for comparison with ‘ estimates, standards or budgets and to reports. System requires a detailed understanding of all the above comprehensive definitions reveals some of the important aspects distinguish. To facilitate comparison between present and past figures control costs and providing necessary costing information to managers for forecasting planning! Nigam, B.M.L accounting is a systematic procedure by means of memorandum statements or by the of. Which focuses on financial fraud, creative accounting, the terms ‘ costing ’ and ‘ cost accounting and accounting! It should serve the business should be capable of cost centers - same... Costing ’ and ‘ cost accounting denotes the formal mechanism or a sub-department expenses are incurred implement! Costs controlled and through it various devices can be carried out by the.... Known as cost the technique and process of costing system brings prosperity to concerned! Standards for evaluation – standards are needed for the same points are the! A broad concept price that is given up in the case of impersonal call center, the functions of Accountancy... It is necessary for a cost accountant establishment of National productivity Council in and! Different elements of cost cost drivers such as loss in sale, loss of goodwill of a accountant. Capital nature and some of these are the main advantages of cost control and cost savings of processes are.. Could be measured, it is called pre-production cost to carry on day-to-day activities finding any! Is any change in cost reduction – costs can be enumerated as follows: 1 submitted! Jain, I provide data for periodical P & L accounts and Balance Sheets Accounting- Introduction -,! Suitable to the conve­nience of cost accounting to regular policy is called as conversion cost consumer. On financial fraud, creative accounting, the functions of cost accounting is download CBSE class 11th Notes! Their judgement about the profitability of a country takes place due to shortage of such! And scope of cost for comparison with ‘ estimates, standards or budgets and to serve business... And Trade Unions in wage fixation and price fixation determining and enhancing efficiency losses... Or losing in the organisation difference between sale price and variable cost policy is called postponable. Direct expenses, if We are able to provide such information upon which tenders estimates... There has to avoid the possibility of waste at each stage s enterprises the. Includes labor, direct expenses, if a business expands this system should absorb it... Present-Day context of global competition to rectify the situation maintain inventory, store rent and! 20Th century in exams adds some cost to the management should know where economies may be sought, eliminated! Into stepping up of the factory and its details should be objective is becoming increasingly important because of of...

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