Definition of Cost accounting
Cost accounting is a specialized branch of accounting which involves classification, accumulation, assignment and control of costs. It is a formal mechanism by means of which costs of products or services are ascertained and controlled.
General Principles of Cost Accounting
- A cost should be related to its cause
- A cost should be charged after it has been incurred
- Abnormal costs (accidents, negligence etc.) Should be excluded from cost accounts.
- Past costs should not to be charged to future period.
- The convention of prudence should be ignored.
Objectives of Cost Accounting
- To analyze and classify all expenditures with reference to cost of products and operations
- To reach at the cost of production of every unit.
- To examine the efficiency of plant and machinery.
- To indicate the management about any inefficiencies.
- For the comparison of actual cost to the cost of production ought to be.
- To provide data for periodical profit and loss accounts and balance sheets
- To enable the management to make short-term decisions of various types such as quotation of price to special customers, assigning priorities to various products.
Importance of Cost Accounting
- Cost accounting helps in price fixation.
- It estimates wastage in production
- It helps in inventory control
- It provides data for periodical profit and loss accounts and balance sheets.
- Cost accounting makes it easy to make comparisons
- Costing as an Aid to Creditors & Employees.