Purposes Of Management Accounting And Financial Accounting:Boundaries of Cost Accounting

          Where does "cost accounting" fit within the above framework? In its broadest sense,cost accounting has the same three major purposes as those deScribed above. However, its third purpose, costing products for inventory valuation and income determination, simultaneousiy fulfills the demands of outsiders and those of management for such information. so, when viewed in this way, cost accounting is management accounting, plus a small part of financial accounting to the extent that its product costing function satisfies the requisites of external reporting. 

          Originally, the label cost accounting referred to the ways of accumulating and assigning historical costs to units of product and departments, primarily for purposes of inventory valuation and income determination. Today, cost accounting is generally indistinguishable from management accounting because it serves multiple purposes. Most fundamentaly, cost accounting now refers to the gathering and providing of information for decision needs of all sorts, ranging from the management of recurring operations to the making of nonrecurring strategic decisions and the formulation of major organizational policies. As in the past, cost accounting also helps fulfill the legal requirements of reporting to stockholders, creditors, government agencies, and other external parties. 

          We need not be greatly concerned with the boundaries of cost accounting. The major point is that the focus of a modern cost accounting system is on helping managers deal with both the immediate and the distant future. Its concern with the past is justified only insofar as it helps prediction and satisfies external reporting requirements.

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Purposes Of Management Accounting and Financial Accounting:Basic Distinctions

The accounting system is the major quantitative information system in almost every organization. It should provide information for three broad purposes:

1. Internal reporting to managers, for use in planning and controlling routine operations
2. Internal reporting to managers, for use in making nonroutine decisions and in formulating major plans and-policies
3. Externai reporting to stockholders, government, and other outside parties

Both management and external parties share an interest in all three important purposes, but the emphasis differs. External reporting is mainly concerned with the third purpose: the historical, custodial, and stewardship aspects of accounting. This area is usually called financial accounting, which is heavily constrained by generallv accepted accounting principles. on the other hand, internal reporting focuses on the first two purposes: management planning and control. This area is usually called rnanagement accounting, which has looser constraints than financial accounting. The distinction between financial accounting and management accounting became institutionalized in the United States in 1972 when the National Association of Accountants (NAA), the largest association of internal accountants in the United States, established a program leading to the Certificate in Management Accounting (CMA)., The Certified Management Accountant (CMA) is the internal accountant's counterpart of the CPA (Certified Public Acccuntant).

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