by A.W. Berry

Created on: February 23, 2010   Last Updated: October 14, 2010

Cost accounting identifies, documents, implements and resolves business costs for both managerial decision making and financial reporting. Without cost accounting, businesses may have out of control expenses, inefficient business practices, excessive liabilities and no effective cost management systems and solutions. Just as financial accounting is regulated by General Accepted Accounting Principles (GAAP), cost accounting is also regulated by Cost Accounting Standards

Cost Accounting Standards (CAS)

Cost accounting that encompasses a process of utilizing cost accounting information for improved business functioning is a helpful if not essential aspect of running a business competitively and efficiently. This article will discuss cost accounting in terms of 1. types of business costs, 2. cost accounting records, 3. cost management systems and 4. solutions for cost management.

1. Types of business costs

Business costs in cost accounting vary from industry to industry and the ideal business has no expenses, which is rare. The different types of costs incurred by a business reflect the management's decision making, the business products and services, and aspects of how a business is operated. Properly identifying business costs is helpful and necessary in preparing and analyzing corporate fundamentals. Some of the business costs handled by cost accounting are listed below:

• Manufacturing costs ex: Nuts and bolts
• Overhead costs ex: Lighting
• Variable and fixed costs ex: Nuts and bolts and salaries
• Direct and indirect costs ex: Paper used for invoices
• Sunk and opportunity costs ex: Investment in equipment

2: Cost statements and documents

What cost accounting also helps with is the recording and documenting of business costs. This process helps track costs every step of the way from origination, through completion of a product manufacturing, sale and service. Cost accounting statements and documents also provide regulators, investors and auditors with necessary financial information with which to analyze the profitability, accounting methods, accuracy and effectiveness of cost accounting systems. A few of the documents, reports and statements used in cost accounting are:

• Schedule of cost of goods manufactured ex: cost of completed product
• Schedule of cost of goods sold ex: costs of sold inventory
• Income statement ex: COG raw materials
• Job cost record ex: costs of work in progress
• Balance sheet ex: product

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