Analytical accounting or cost accounting is also known as internal accounting and can be defined as that part of accounting that will record and analyse the company’s production costs in order to be able to better manage and plan them.
What is cost accounting?
The concept of cost accounting
Cost accounting is a technique of internal measurement and analysis of the company that companies need in order to be able to establish a prior sale of their products on the basis of the cost of generating them. However, its scope of application can be broader and can also cover the costs of administration, distribution and even financing.
What is the difference between cost accounting and financial accounting?
Analytical accounting requires the information provided by financial accounting in order to be able to develop and, in turn, financial accounting needs the information provided by analytical accounting.
However, there are many differences between the two types of accounting, among which we can highlight the following:
- Compulsory: while financial accounting is compulsory, cost accounting is not.
- Regulation: financial accounting is regulated by the PGC and the Commercial Code, while cost accounting is not, and is designed according to each company, depending to a certain extent on the subjective interpretations of those in charge.
- Objective: the objective of financial accounting is to provide information to third parties whereas the objective of cost accounting is to serve as a decision-making tool.
- Users: financial accounting information is intended for the company itself as well as for the public administration, creditors, investors, financial institutions, shareholders, etc. The user of cost accounting will only be the entrepreneur himself or the company’s management.
- Information support: financial accounting documents its information in the annual accounts, while analytical accounting documents its information in non-standardised documents such as the functional income statement and cost statements.
What are the objectives of cost accounting?
Although the fundamental objective is to provide sufficient information to serve as an essential tool in decision-making through the periodic and detailed information generated by its records, the following objectives should also be highlighted:
- To calculate the costs both of products and services finished by the company, and of the various sections or documents into which it is divided.
- To value the stocks in the warehouse of merchandise, raw materials, products in progress, finished products that serve as data for financial accounting in order to make adjustments at the end of the year and to determine the possible selling prices of these items.
- Valuation of assets with a view to their depreciation.
- Measuring the contribution of each product to the possible profit or loss of the company.
- Preparation of cost budgets and detection of possible deviations.