Question

Which of the following differentiates cost accounting and financial accounting?

A) The primary users of cost accounting are the investors, whereas the primary users of financial accounting are the managers.
B) Cost accounting deals with product design, production, and marketing strategies, whereas financial accounting deals mainly with pricing of the products.
C) Cost accounting measures only the financial information related to the costs of acquiring fixed assets in an organization, whereas financial accounting measures financial and nonfinancial information of a company's business transactions.
D) Cost accounting measures information related to the costs of acquiring or using resources in an organization, whereas financial accounting measures a financial position of a company to investors, banks, and external parties.

Answer 1

Option D correctly highlights the difference between cost accounting, which deals with internal production costs for managerial decisions, and financial accounting, which deals with the overall financial status for external stakeholders.

Step-by-step explanation:

The correct option that differentiates cost accounting from financial accounting is D) Cost accounting measures information related to the costs of acquiring or using resources in an organization, whereas financial accounting measures a financial position of a company to investors, banks, and external parties. Cost accounting focuses on the internal processes and costs associated with production and is utilized primarily by management to make decisions regarding the efficiency and financial aspects of production strategies. Financial accounting, on the other hand, deals with the broader financial health of a company, providing a picture of its financial status through income statements, balance sheets, and cash flow statements, primarily for external stakeholders such as investors, banks, and regulatory agencies.

While accounting profit, which is a focus of financial accounting, considers only explicit costs as part of its calculations, economic profit, which could be more aligned with the broad insights cost accounting seeks to provide, considers both explicit and implicit costs. It's also relevant to note that businesses use their accounting profit to determine their taxable income, but their economic profit gives a clearer picture of their overall economic success.