Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting

Under which of the following does a cost accounting system differ from financial accounting in its treatment of items?

Interest received on investments is recorded in the financial accounts but excluded from the cost accounts, because it is a purely financial income unrelated to production activity. Items like income tax and loss on sale of assets are also excluded from costs, not included.

  1. AIncome tax paid is included in product cost, but excluded from financial accounts
  2. BLoss on sale of a fixed asset is charged to product cost, but is shown in financial accounts
  3. CInterest received on investments is excluded from cost accounts but is recorded in financial accountsCorrect
  4. DGoods sold are valued at cost in cost accounts and at selling price in financial accounts

Explanation

Purely financial incomes such as interest or dividend received are not related to production or operations, so they are excluded from cost accounts, whereas they appear in the financial accounts. Income tax and losses on asset sales are also excluded from cost accounts, which makes A and B wrong. D is wrong because sales are recorded at selling price in both.

Did you get it right without looking?

One question tells you little. A timed set on Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting shows your real accuracy, how long you take and where you lose marks.

Practise Meaning and Significance of Cost Accounting and its Relationship with Financial AccountingFree diagnostic mock

More Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting questions