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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 correctly states a difference between cost accounting and financial accounting?

Cost accounting is designed mainly for internal management, giving detailed product or department cost information without a rigid statutory format. Financial accounting prepares general-purpose statements in prescribed formats for external users such as shareholders, lenders and tax authorities. This is the key distinction between the two systems.

  1. ACost accounting is mainly for internal management use and is not bound by statutory format, whereas financial accounting follows prescribed formats for external usersCorrect
  2. BFinancial accounting gives product-wise cost and cost accounting gives only the overall profit
  3. CCost accounting is compulsory for every business under company law in the same form as financial statements
  4. DFinancial accounting deals only with future estimates, cost accounting only with past records

Explanation

Cost accounting serves managers, provides product or department-level details and has no fixed statutory format. Financial accounting prepares statements for external users as per prescribed norms. The other options reverse the roles or misstate the legal position.

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