1. Concepts and Objectives of Cost Accounting
Cost Accounting-I
Concepts and Objectives of Cost Accounting

2. What is the Mission Accounting?
Accounting generates financial information about the business activities.

3. What are the Business Activities ?
An entity has
planning,
financing,
investing and
operating activities.

4. What are the Business Activities ?
An entity performs these activities for
producing/purchasing
selling goods and services and
to yield a satisfactory return on investment.

5. What are the Business Activities ?
Planning Activities
A company has specific goals and strategies to gain profit from its activities. A company plans expected opportunities (expected return, expected cash flow etc.) and obstacles (market risk, interest rate risk, inflation risk, political risks etc.).
Investing Activities
Investing activities are the business activities that involve the acquiring and selling of long-term assets, the acquiring and selling of equity or debt securities other than trading.

6. What are the Business Activities ?
Financing Activities
A company needs financing in purchasing raw material plant and equipment and technology. In financing assets company use most common forms of financing; debt and equity.
Operating Activities
Operating activities refers to the carrying out of the business plan. These activities contains five basic components:
Research,
Purchase,
Produce,
Marketing and
Labor.

7. What is the Mission Accounting?
Economic Events
Recognize
Classify
Report (Financial Statements)
Accounting is a system which
identifies,
collects,
recognizes,
classifies and reports the economic and financial events that an entity meets.

8. What is the Mission Accounting?
Generating True and Fair Financial Information
Presenting Financial Information (Financial Statements)
The objective of financial statement is to provide useful financial information about the reporting entity’s activities.

9. Users of Financial Reports?
Potential Investors
Lenders
Audit Firms
Labor Unions
State
Management and Existing investors

10. The Place of Cost Accounting in Accounting Information System
Economic Events
Recognize
Classify
Report (Financial Statements)
Financial Accounting
Management Accounting
Cost Accounting

11. Accounting Discipline Overview Financial Accounting
Journal
Withdrawals
Revenue
Expense
Ledger
Post-Closing
Trial Balance
Income
Statement
Balance
Assets
Liabilities
Net Profit
- Expenses
Net Income/
or Loss
Assets = Liabilities
+ Net Worth
Closing entries are recorded in the Journal at the end of the accounting period.
Entries are then posted to Ledger Accounts.
Ledger accounts are then listed in the Post-Closing Trial Balance.
Then the Financial Statements are prepared.

12. Accounting Discipline Overview
In transaction system, the economic events are collected, classified and summarized and the outcomes of accounting system are reported in financial statements (balance sheet and income statement).

13. Accounting Discipline Overview
Assets
Balance Sheet
Liabilities
Cash and Cash Equivalents
Debt
Trade and Other Receivables
Inventories
Land
Property, Plant and Equipment
Loans
Debts from shareholders
Trade and Other Payables
Patents, licenses etc.
Equity
Capital
Net Profit/Loss

14. Accounting Discipline Overview
Balance Sheet
Assets = Liabilities Net Worth(*)
Cash, Accounts Receivable, Equipment, Buildings, Land, etc., elements that help the business generate income
Amounts owed others
The difference between Assets and Liabilities. This is the part of the business “owned”.
Let participant/s read this information. Ask if they have questions.
(*) Owner’s Equity

15. Accounting Discipline Overview
Income Statement
Sales
Cost of Goods Sold
Gross Profit/Loss
Operating Expenses
Operating Profit/Loss
Finance Income
Finance Expense
Profit/Loss of Current Period
Tax Expense
Net Profit/Loss of Current Period

16. What is Cost Accounting?
Cost accounting is a quantitative method that accumulates, classifies, summarizes and interprets information for three major purposes:
Operational planning and control ;
Special decision; and
Product decision process

17. The Place of Cost Accounting in Accounting Information System
Financial Accounting
Management Accounting
Cost Accounting
Cost accounting involves both recording, evaluating and calculating techniques in ascertaining total and unit costs.

18. Why do we Need Cost Accounting?
Financial accounting generates limited information in making decisions. Thus we need additional information about operating activities. Cost accounting provides financial information in decision making.

19. Why do we Need Cost Accounting?
Financial accounting;
does not help cost control (materials, supplies, wages and etc.),
does not help fixing price,
does not classify expenses and
generates limited information for managers.

20. The Place of Cost Accounting in Accounting Information System
Financial Accounting
Management Accounting
Cost Accounting
Cost accounting process involves collecting, analyzing, summarizing and evaluating various alternative courses of action. Its goal is to advise the management on the most appropriate course of action based on the cost efficiency and capability.

21. What is Cost Accounting?
Cost accounting generates financial information both for external (third-parties related with company) and internal (management) users. The for example, cost accounting determines the total and unit cost of products or projects in order to report the correct amount on financial statements (external purposes). And also assists management in making decisions and in the planning and control of an organization (internal purposes).

22. The Objectives of Cost Accounting
Cost accounting systematically records the expenses and ascertain the cost of each product and enable management to know where to economize on costs, how to fix prices, how to maximize profits.

23. The Objectives of Cost Accounting
The objectives of cost accounting are
calculating the total and unit cost of a product,
analysis of financial records and costs so as to subdivide expenditure,
allocating the expenditures to selected cost centers and build up a total cost for departments,
controlling and reducing the costs,
planning and budgeting the costs and
helping management in making decisions.

24. The Objectives of Cost Accounting
Cost accounting gives information and reports to the management in the following ways:
Control of Material Cost – Cost of material is a major portion of the total cost of a product. It can be controlled by regular supply of material maintaining optimum level of funds in stocks of materials and stores.
Control of Labor Cost: If workers complete their work within the specified time cost of labor can be controlled.
Control of Overheads: By keeping a strict check over various overheads such as factory, administrative and selling & distribution, this can be controlled.

25. The Objectives of Cost Accounting
Measuring Efficiency: Cost accounting provides information regarding standards and actual performance of the activity for measuring efficiency.
Budgeting: The preparation of the budget is the function of costing department and budgeting is done to ensure that the practicable course of action prepared in detail. The analysis of cost include the comparison of realized performance with the estimated or budgeted performance.
Price Determination: On behalf of cost accounting information, management is enable to fixing the selling price for various items of products and services in different circumstances.
Expansion: The management may be able to formulate its approach to expansion on the basis of estimates of production of various levels.

26. Cost Accounting System
Generating Financial Information
Classifying the Costs
Recording System
Analyzing Costs
Cost Control and Reducing
Planning and Budgeting
Making Decision