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

Which statement about the relationship between cost accounting and financial accounting is correct?

Cost accounting analyses costs by product, process or department, while financial accounting shows the overall profit and financial position of the whole entity. Financial accounting serves external users under statutory requirements, whereas cost accounting mainly serves internal management with detailed cost information.

  1. AFinancial accounting gives detailed unit-wise cost and profit for each product, while cost accounting does not
  2. BCost accounting is concerned with historical totals for the whole business only
  3. CCost accounting analyses costs by product, process or department, whereas financial accounting shows overall profit of the entityCorrect
  4. DFinancial accounting is meant only for internal management and is not governed by any statute

Explanation

Financial accounting reports overall profit or loss and financial position, mainly for external users, under statutory requirements. Cost accounting breaks costs down by product, job, process or department for internal management. Option A reverses the two roles.

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