While cost accounting and financial accounting are often used interchangeably by outside investors, financial accounting includes all assets and liabilities within a company to measure financial performance. Financial accounting is an assessment and report done for creditors, investors, or regulatory agencies. A cost accounting system tracks the cost of production or the cost of doing business and involves reports that management uses to evaluate cost margins and determine budgets. Job opportunities in cost accounting can be found in an increasing number of business sectors.
What is Cost Accounting?
Cost accounting uses a variety of reports to understand where a company loses or earns money during the process of doing business by manufacturing a product, or by offering a service. Those in management then use this information to make decisions regarding production of goods, services, or generating profit in the future. While financial accounting is done at regular intervals, cost accounting is done any time management determines a need for change. Cost accounting reports may determine changes in future production, sales, or services.
Cost accounting basics are accomplished using a number of tools to gather information and analyze results. A cost accountant uses data from a variety of tools and sources to compile a broad range of reports for those in management. Reports are generally specific to a product, product lines, procedure, or situation such as customer conversions or market areas. A cost accountant is also responsible for analyzing production cost as a work in progress in time and labor, raw materials, as well as finish goods inventory. A cost accountant provides detailed information that is often used to project future costs and determine budgets for various departments or projects.
There are a number of key activities involved in cost accounting basics. A cost accounting system involves these activities in any combination based on the business, product, or specific managerial concerns. Cost accounting basics include first defining costs as direct labor, direct materials, and variable overhead, fixed overhead and period cost. Once all costs are defined, the cost accountant uses a specific allocation method to assign costs to products as well as services. This allows the examination of all costs connected with a product or service to see if time, money, labor, and resources are being used efficiently. In the process of analyzing overall costs and determining changes that have or may occur to affect overall production cost, a full report to management will include evaluating the need for budget changes. This recommendation is based on predicted changes in cost and activity or production levels. After analyzing the current system for losses or bottlenecks slowing production and increasing costs, the cost accountant is also responsible for recommending where and how cost may be reduced and calculating future production costs.
Cost accounting standards are nineteen standards set by the federal government to direct conformity and uniformity in cost accounting by federal defense contractors. Though these standards were developed for large government contracts, they are also useful cost accounting standards for all larger contracts or business analysis when costs are estimated to be $100,000 or more. Cost accounting standards also require contractors to put into writing all their cost accounting practices and to follow their disclosed practices consistently. Depending on the size of the company and what services or products that company provides, they may be required to follow all 19 standards, modified standards, or may be exempt. Companies establish a cost accounting system to analyze cost effectiveness while also providing necessary documentation for any standards they are required to follow. The cost accountant must know which standards their company is expected to abide by and provide reports that include all necessary documentation.
Jobs Available to Graduates with Knowledge of Cost Accounting
Every business should understand the need for cost accounting and have a system in place to monitor production or service costs on a regular basis. Cost accounting is adaptable to industry, product manufacturing, and service providers. Examples of jobs available to individuals with an accounting degree include; job order cost accounting, manufacturer cost accounting, health and hospital cost accounting, and managerial cost accounting. In addition, all service driven industry, health care providers and health care services, as well as all types of manufacturing businesses or industries also have a need for graduates with knowledge of cost accounting. The American Accounting Association is a tremendous resource for those interested in more information about the future of cost accounting opportunities.
Why Should One Get an Accounting Degree?
According to theUS Department of Labor, job opportunities in accounting are expected to increase by sixteen percent between 2010 and 2020. Much of that increased demand for accountants will be financial documentation and reporting to help businesses stay profitable during financial crisis or increased financial regulations. Median pay for accountants during 2010 was $61,690 or $29.66 per hour. Entry-level education preferences are for a bachelors degree with top positions often going to those with a masters in accounting. Job positions are available in nearly any industry or job sector and the demand for graduates with an accounting degree is expected to continue to increase rapidly through 2014 and beyond. A degree in accounting pays off in job flexibility and you are in the unique position to be in business for yourself as advisors or private contract CPAs. There are many school options available including online accounting degrees for those who may be returning to the work force, or shifting career focus later in life.