What is Cost Accounting ?


 Cost Accounting is the process of accounting for costs. It begins with the recording of income and expenditure and ends with the preparation of periodical statements.

In other words, Cost accounting is the accounting method for ensuring cost-effectiveness by accumulating, organising, recording, calculating, analysing and assessing the overall expenses incurred on a product, process or project, etc.

It deals with the cost of every unit, job, process, order, service, etc, whichever is applicable and includes the cost of production, cost of selling and cost of distribution.


The following are the main objectives of cost accounting :-

  • Assist Management in Decision Making: The reports and cost sheets generated based on cost accounting assists the management in making decisions for the organization.
  • Determination of selling price :- Cost accounting provides cost information on the basis of which selling prices of products or services may be fixed.
  • Cost Control :- Reducing and controlling cost is the primary objective of cost accounting. This is done by managing the cost of production per unit to improve profitability without compromising with the quality of the product.
  • Determination of profitability :- By periodically reviewing the costs and taking necessary actions whenever required, cost accounting ensures profitability from all the business activities.


The various functions of cost accounting are listed as below :- 

  1. Provide the necessary information for the determination of selling prices.
  2. Ascertain the wastage in each of the manufacturing process and take necessary measures to control the wastage.
  3. Ensure proper valuation of the closing stock, raw material and work in progress of the organization so that unnecessary funds are not locked up in the inventory.
  4. Calculate the cost per unit of various products manufactured by the firm.
  5. Provide necessary and relevant data to the managers periodically which assists them in taking strategic decisions and better management of affairs of the organization.
  6. Provides detailed information regarding cost of each step of production on the basis of which deviations in costs are detected and necessary steps are taken to control the costs.


Thus, in simple words Cost Accounting is a branch of accounting concerned with recording and analyzing the cost elements of the organization & performs a wide range of functions that are essential for the successful functioning of the business.

Accounting & Finance for Banking

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