Management Accounting - Cost Classification

COST CLASSIFICATION ASSIGNMENT

To classify the various costs would first of all require a definition between the two types of accounting that practically all businesses have to face and a number of key terms which are equally important. These are management accounting and financial accounting.

1. THE DIFFERENCE BETWEEN MANAGEMENT & FINANCIAL ACCOUNTING:

Management accounting is concerned with decision making, cost apportionment, planning and control. It is based within the organisation and is solely for the use of the managers to conduct their business dealings. The process of management accounting is proactive meaning the company is looking ahead, not backwards.

Financial accounting on the other hand is externally based and is primarily concerned with the preparation of financial statements for organisations’ stakeholders. Stakeholders would include shareholders and competitors. Unlike management accounting it has to comply with various financial legislations and standards. Financial accounting concerns using data from previous years which also means that the information which is used is generally out of date.

2. HOW ARE ALL THE COSTS CLASSIFIED?