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CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Which of the following best describes the main point of difference between cost accounting and financial accounting as taught in the CMA paper?

Cost accounting mainly ascertains and controls costs to help internal management, while financial accounting reports the overall financial results and position of the entity to external users. The other statements reverse the roles or wrongly describe the time orientation and statutory format of the two systems.

  1. ACost accounting records only external transactions with outsiders, while financial accounting records internal transfers
  2. BCost accounting is concerned mainly with ascertaining and controlling costs for internal management use, while financial accounting reports the firm's overall results to external usersCorrect
  3. CCost accounting must follow the Companies Act format for presentation, while financial accounting need not
  4. DCost accounting deals only with past data, while financial accounting is always forward looking

Explanation

Cost accounting focuses on cost ascertainment, control and decision support for management, whereas financial accounting prepares statements for external users such as shareholders and lenders. The first option reverses the roles. The third reverses statutory format requirements. The fourth is wrong because cost accounting also uses estimates and standards, while financial accounting is historical.

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