11. Thus, “ascertained costs provide a measure for estimates, a guide to policy, and a control over current production.”. HIRE verified writer $35.80 for a 2-page paper Costing has a vital role to play in almost any activity which involves expenditure of money, whether it is a business house or a charitable concern or whether it is a Government Department. The method of remunerating the labour should also be checked and introduce attractive incentive plans if necessary. 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. The technical aspects of the business should be considered and attempt should be made to get the assistance of the technical and supervisory staff. And, that is used for external reporting purpose. To serve the management in the valuation of goods-in-process and finished goods, so that the minimum capital is blocked up in the stocks. Helps investor’s, moneylenders and other financial institutions to know about the business, 10. Requisites 12. Following are the main concepts of cost accounting: There is a cost involved to purchase or produce anything. It begins with the recording of income and expenditure and ends with the preparation of periodical statements. The cost accounting procedure involves the following steps in a sequential order: 1. Disclaimer 8. Some expenses are variable, some are semi-variable, and some of fixed nature. 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. 10. Costs may be different for the same product, depending upon the stages of completion. It facilitates delegation of responsibility for important tasks and rating of employees. 2. 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. Cost accounting is able to provide the necessary information for such decisions. Cost accounting is one of the branches of accounting. Incremental revenue implies the difference in revenues between two alternatives. It also explains in detail the sources of profit or loss revealed by the financial accounts; thus helps in presentation of better information before the management. Cost can be reduced by proper organisation of the plant and executive personnel. To elaborate the statement, the functions of cost accounting can be enumerated as follows: 1. They can base their judgement about the profitability and further prospects of the enterprise upon the studies and reports submitted by the cost accountants. The cost incurred before commencing formal production or at the time of formation of new establishment or project is called pre-production cost. Cost Accounting : An Introduction MODULE - 6B Elementary Cost Accounting 27 Notes COST ACCOUNTING : AN INTRODUCTION After passing your senior secondary examination, if you set up a small manufacturing unit, say manufacturing of packing boxes, a problem will arise what price of each box you should quote to the buyer. 2. But there is a little difference between the two. 11. The terms ‘Costing’ and ‘Cost Accounting’ are often used interchangeably. Prohibited Content 3. (v) No analysis of causes of losses – Financial accounting does not analyse losses- owing to wastage of materials, ideal time etc. Cost Accounting Principles and Practice, Jain, I. Control of cost – Cost control aims at improving efficiency by controlling and reducing cost. Plagiarism Prevention 5. No business will have a common costing system readily available to meet the cost information. In normal times, we can say that profit or loss shown by Profit and Loss account is an indicator of overall efficiency or inefficiency. To prepare a correct cost analysis of both by process or operations, and by the different elements of cost. 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. Cost Accounting is the process of accounting for costs. Contribution margin is the difference between sale price and variable cost. These are the Computerized Accounting System class 11 Notes Accountancy prepared by team of expert teachers. Value addition of the product may be due to some process on product or to make the product available or there may be other reasons; but it also includes the profit share on it. For planning in future, preparations of budgets are necessary. They get benefit indirectly through increase in consumer goods and directly through continuous employment and higher remuneration. ii) Growing competition among manufacturers led to fixation of prices at a lower level, so as to attract more customers. 13. Financial Accounting Notes What is Financial Accounting? Costing makes comparison possible – If the costing records are regularly kept, comparative cost data for different periods and various volumes of production will be available. The following are the main features of cost accounting. Helps in estimate – Adequate costing records provide a reliable basis upon which tenders and estimates may be prepared. Wheldon – “It is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of products or services, the relation of these costs to sales values and the ascertainment of profitability”. (vi) No standards for evaluation – Standards are needed for the measurement of operational efficiency and performance evaluation. Besides management, creditors and employees are also benefited in numerous ways by installation of a good costing system in an industrial organisation. Urgent costs are not be postponed. Financial accounting (BCA 306) Uploaded by. Some costs are actual, such as raw material cost, freight cost, labor cost, etc. The terms ‘Costing’ and ‘Cost Accounting’ are often used interchangeably. Google+. 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. To compute product-wise profit, and advise the management for the enhancement of profit. 2. The limitations of financial accounting have made the management to realise the importance of cost accounting. It is an organised body of knowledge consisting of its own principles, concepts and conventions. The steps required to install a costing system are as follows: 1. Therefore, to evaluate the present product and market it, it is necessary to measure the performance and business efficiency. The exact cause of variance in the profit or loss can be located. Cambrige AS and A Level Accounting Notes (9706)/ ZIMSEC Advanced Accounting Level Notes: Introduction to Cost and Management Accounting. Adequate costing facilitates this. Cost Accounting is the process of accounting for costs. (vii) No cost data for managerial decisions – Financial accounting does not provide cost data for taking various managerial decisions. Account Disable 11. 12. (iv) No classification of expenses – Financial accounting does not classify expenses into direct and indirect, controllable and uncontrollable expenses. 3. Here, science includes the body of systematic knowledge a cost accountant should possess for proper discharge of his responsibilities. 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 … Management Accounting- Introduction - Meaning, Nature, Characteristics, Functions, Tools and Techniques, Advantages and Disadvantages. For example, if a business expands this system should absorb in it. Post Views: 934. So the management would be well advised to ascertain the profit or loss of each product separately. The course is designed to enable students to learn the application of the double entry system of book keeping, as well as the underlying principles, concepts, conventions and classification of accounts as applied in different types of transactions. To establish an effective reporting system. The term ‘Cost Accounting’ is defined in different ways by various authorities as follows: Kohler – “It is that branch of accounting dealing with the classification, recording, allocation, summarisation and reporting of current and prospective costs”. 3. Helps in inventory control – Costing furnishes control which management requires in respect of stock of materials, work-in-progress and finished goods. These principles and rules vary from industry to industry. 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. 6. Some expenses are attributable to cost. The cost incurred to implement a new policy in addition to regular policy is called policy cost. Evolution 4. Accounting is a broad concept. Cost Accounting - Introduction - â ¦Wheldon. Financial accounting is developed to communicate economic information of an organization as a whole. Financial accounts cannot serve this purpose at all. Download revision notes for Introduction to Accounting class 11 Notes Accountancy and score high in exams. 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. Sometimes loss is incurred due to shortage of stock such as loss in sale, loss of goodwill of a business or idle machine. Costing, Cost Accounting and Cost Accountancy: In practice, the terms ‘costing’ and ‘cost accounting’ are used interchangeably. Introduction to Accounting. Aids in determining and enhancing efficiency – Losses due to wastage of material, idle time of workers, poor supervision etc. 5. To provide a perpetual inventory of stores so that interim P & L A/c and Balance Sheets can be prepared without actual stock-taking and checks on stores and adjustments are made at frequent intervals. Cost Accounting Procedure and Techniques 14. Explain the meaning and scope of cost accounting; 2. 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”. Flexible – A Cost Accounting system should be flexible enough to be changed according to the business environment and conditions. This definition is authoritative. Twitter. 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”. Shilling – “Cost Accounting as a body of concepts, methods and procedures used to measure, analyse or estimate the costs, profitability and performance of individual products, departments and other sequences of a company’s operations, for either internal or external use or both and to report on these questions to the interested parties”. It should serve the business by providing all necessary informations. Helps in channelising production on right lines – Costing makes possible for the management to distinguish between profitable and non-profitable activities. Carrying cost represents the cost to maintain inventory, lock up cost of inventory, store rent, and store operation expenses. 3. Report a Violation 10. Importance 11. Comparability – The cost records should be maintained in such a way to facilitate comparison between present and past figures. This helps in cost control. But there is a little difference between the two. In every course you will find the difference in learning. Download CBSE class 11th revision notes for Chapter 1 Introduction to Accounting class 11 Notes Accountancy in PDF format for free. In this field also, Cost Accounting is more capable of helping management than Financial Accounting. The additional functions can be briefly listed as under: 1. 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 The cost changes according to the stage a product is in, for example, raw material, work in progress, finished goods, etc. The overall economic development of a country takes place due to increase in efficiency of production. Everything you need to know about cost accounting. xi. To provide an independent and reliable check on the accuracy of financial accounts with the help of reconciliation statement. 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. The layout of the factory and its details should be properly studied. 7. Only, Cost Accounting system can provide this information to the management. The below given notes will help you for prepare for various competitive examination. a. Financial accounting is largely concerned with financial statements for external use by investors, creditors, labour unions, financial analysts, government agencies, and other interest groups. When the centers render their services to a product department for its smooth functioning, they are called service cost centers. However, costing should not be confused with cost accounting. Disadvantages. 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”. Knowledge of costs and controlling costs is vital to good management. Image Guidelines 4. It mainly concerns three branches. To provide the Government or other public bodies with the specialized service of cost audit. 3. The nature of cost accounting can be discussed under the following headings: Though cost accounting is considered as a branch of financial accounting, it is one of the important branch of knowledge. The application of Cost Accounting methods in Indian industries was felt from the beginning of the 20th century. Cost Accounting and Allied Accounting Subjects and provide good qualitative and quantitative information to managers for forecasting and planning future financial activities. For fixing prices of products or services, it is necessary to have information regarding each product or unit of service rather than total expenditure. (b) Cost accounting is a science and arts both. To earn revenue, some expenses are incurred like rent, salary, insurance, selling & distribution cost, etc. Guide to business policy – Cost accounting aims at serving the needs of management in conducting the business with utmost efficiency. Profit centers adopt policies to achieve such targets. Unnecessary details should be avoided as for as possible. Get a verified writer to help you with Introduction to Cost and Management Accounting Notes. But cost accounting denotes the formal mechanism by means of which costs are ascertained and data are provided for various purposes of management. Common notion is that it cannot control costs and can contribute for operating efficiency. These are the Introduction to Accounting class 11 Notes Accountancy prepared by team of expert teachers. All the above limitations of financial accounting have been overcome by cost accounting. Cost allocation—assigning a whole item of cost, or of revenue, to a single cost unit, centre, account or time period. 1. Notes of operating system. Costing can be carried out by the process of arithmetic, by means of memorandum statements or by the methods of integral accounts. Contents: Notes on Cost and Cost Accounting Notes on […] Suitable to the Business – A Cost Accounting system should be designed according to the nature, type and size of the business. Not applicable for all types of industry. However, for all this, it is necessary for the management to be capable of using in a proper way the information provided by the cost accounts. 3. Product and Service Cost Centers - A department where all activities refer to product is called a product department. In recent years cost accounting has become one of the important professions which have become more challenging. Accounts basics for beginners is free and available for anyone to download and Download Introduction to Accounting textbook pdf. Notes for Management. The subject has been developed to mitigate the limitation financial accounting originally had. Meaning and Definitions of Cost Accounting 3. INTRODUCTION TO COST ACCOUNTING Cost accounting is the process of tracking, recording and analyzing costs associated with the products or activities of an organization. Costing simply means cost finding by any process or technique. To coordinate with the industrial engineers for the introduction and implementation of methods suggested for improvement and or redundancy of programmes and data. Cost of any product depends upon cost drivers. That is the general meaning of cost. Moreover, big business requires delegation of responsibility, division of labour and specialisation. Cost accounting has assumed special significance beyond cost control this way. 10. As an aid to management it also provides invaluable information to enable management to maintain effective control over stores and inventory, to increase efficiency of the business and to check wastage and losses. Cost accountancy is a wide term which includes several subjects such as costing, cost accounting, cost control, budgetary control and cost audit. To calculate the cost per unit of the various products manufactured by the firm. Content Filtration 6. Practice includes the continuous efforts of a cost accountant in the field of cost accountancy. SESSION 1: INTRODUCTION TO COST ACCOUNTING Learning Objectives: After reading this unit, the students will be able to: 1. The system should be simple and easy to operate. TAGS; b.com notes; Facebook. iii. Below is the list of cost accounting book recommended by the top university in India. To develop new product, improve existing product, and improved method in producing a product called development cost. The system should be designed after a careful analysis of the nature of the operations and the type of cost data required by the management. to control cost of material labour and overheads. Scribd is the world's largest social reading and publishing site. financial accounting and management unit introduction to accounting book keeping it is the art of recording the business transactions in set of books. Without avoiding any expenses, if we are able to defer some expenses to future, then it is called a postponable cost. When the cost is fully consumed and no future monetary value could be measured, it is called expired cost. This information is available to the management only under Cost Accounting System. Every cost center adds some cost to the product and every cost center is responsible for all its activity and cost. Costing refers to the technique and process of ascertaining costs. The system should be able to serve the requirements of management. Profitable and unprofitable activities are disclosed. The requirements of management may be summarised as follows: To face severe competition in the business world, a management always needs to maintain their customers. Budgeting is a powerful tool that helps the management in performing its functions such as planning, coordinating But in the periods of inflation or depression this may not be true. ix. 3. The various advantages derived by management on account of a good costing system can be put as follows: i. Costing helps in periods of trade depression and trade competition – In periods of trade depression the business cannot afford to have leakages which pass unchecked. Cost accounting is concerned with ascertainment and control of costs. Introduction to Accounting - Lecture Notes - Free download as PDF File (.pdf) or read online for free. 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