What is Financial Accounting?

Financial Accounting Concept

Accounting is a science that monitors changes in equity, since the formation of the company, and that can be used to monitor the financial health of the business.

With that, accounting works from the collection and processing of financial information, while the company carries out its billing operations with sales, or spending on raw materials.

This information is distributed in different documents, which are used for analysis by internal managers, but mainly, agents external to the company, such as investors, for example.

In addition, financial data is collected for all types of transactions and handled in accordance with country regulations.

Differences between Financial Accounting and Management Accounting

Financial and Managerial Accounting differ in the way they are done, due to the different users of the company’s accounting information.

In a simple way, while Financial Accounting is made for the appreciation of external users, Management Accounting is used internally by the company’s managers.

Therefore, the Finance company is the one who forms the values ??that appear in the financial statements, such as the Balance Sheet, based on principles and rules that must be followed.

In Management Accounting, the focus is on planning and controlling the use of resources, using the values ??of Financial Accounting in the interpretation and decision making of management.

Financial Accounting and Cost Accounting

Cost Accounting is performed to obtain, in more detail, the production costs that Financeira demonstrates only in Liabilities or in Income Statement expenses.

More detailed cost accounting measures and describes the origins of each resource acquisition in the activities that the organization performs.

Thus, it is possible for managers to monitor the evolution of expenses in relation to revenues, sales or services, when obtaining assistance from this document.

Cost accounting, as well as managerial accounting, is carried out by accountants for the company’s internal public, especially managers.

What is cost accounting

Cost accounting uses accounting methods so that the company can assess the costs that the company bears.

Through this accounting, managers are able to track recurring expenses in the production of the products or services that are offered. The amounts calculated are also part of the accounting reports produced.

Being made for the company’s cost management, this accounting differs from the financial accounting that produces information to the company’s external public, following the current legislation.

How Cost Accounting Is Done

In this type of accounting, costs are analyzed and classified as they are calculated and generate information for the company’s managers. For management it works for decision making and controlling the company’s costs.

It measures the costs of acquiring and consuming the resources that are part of the production of a product or for the service to be offered.

Cost accounting allows you to understand how costs behave as production takes place. For management, it is possible to make decisions that can impact the company’s profits.

Cost classification

Accounting takes into account those costs that are variable at each stage of production and fixed costs, also considering direct and indirect costs.

  • Variable costs: are characteristic of the company’s production level. As production increases, costs increase, as do inventories.
  • Fixed costs: do not vary with the quantity to be produced. It is an example of when the property where a store operates is leased.
  • Direct costs: these costs are known as they are directly linked to the item to be measured. This is the case of the labor used in the production of a product.
  • Indirect costs: these costs are not directly linked to production. The cost of electricity for a company can be considered in this regard.

In addition to these, cost accounting can consider other classifications according to your needs. One option is to divide the costs by activities of the company, considering the operational, commercial, administrative and financial costs.

With this cost information identified, the company’s accountants are able to record inflows and outflows according to management.

In this process, it is also decided how the costs of the product, as well as the inventories, will be priced, according to the sale price.

For products or services sold by the company, accounting identifies the break-even point from which more revenues are generated than expenses.