Difference Between Costing and Cost Accounting

The two decisive aspects of profits are cost and revenue. Companies can create larger profits by increasing the revenue base and managing costs at an appropriate level. Costing and cost-accounting are used to control and reach cost decisions. While costing is known as the exercise of costing, cost accounting is a systematic process of analysis, interpretation, and costing information presentation to the management for decision making. Explained below are important differences between costing and costing accounting.

Differences Between Costing and Cost Accounting

  • Differences based on Definition

The term “costing” refers to the technique and practice of estimating input costs at each stage of the manufacturing process. Different methods are used by the company to determine the cost of the product or service in costing. They consist of the basic principles and set of rules to apply to regulating the entire process. Costing is the foundation of an internal financial information system, by providing the business with the data on the activities required by effective planning and management control to ensure the correct future course of action.

The costing techniques used to evaluate expenses and processes for specific goods or products vary by industry, and they are dynamic in nature, changing as time passes. Costing is the process of analyzing financial records in order to classify expenses, summarize the element, and assign it to the appropriate cost center in order to calculate the total cost for the unit, process, job, or contract, as well as the relationship between these costs and total sales and profitability.

The branch of accounting that deals with the incurrence and control of costs is known as cost accounting. It calculates and collects the cost of goods, products, or activity, and classifies, records, allocates, evaluates, analyzes, and controls the cost. As the name suggests, cost accounting includes accounting for costs, starting with revenue and expense recordings, and ending with the preparation of periodic statements and reports in order to determine product and service costs, and analyzing data in an integrated and organized way in order to control costs and manage costs, take corrective measures and make reasonable arrangements.

Cost Accounting enables management to accurately assess the whole cost of a particular manufacturing unit while showing exactly how much overall costs are created. It helps to measure the operating effectiveness of the business. Cost accounting entails thoroughly analyzing, forecasting, standardizing, and comparing cost data, as well as providing it to management in the form of statements and reports for better decision-making. It also covers the preparation of budgets, the discovery of variations, and the reasons.

  • Differences based on Accounting Principle

The general rules and standards to be followed by corporations when reporting on all accounting and financial data are the accounting principles. The fundamental objective of any set of accounting principles is to assure a thorough, uniform, and comparable accounting of a corporation. This allows investors to more easily examine and extract important information from a company’s financial records, such as trend data over time. It also makes it easier to compare financial data from different organizations. Accounting principles also aid in the prevention of accounting fraud by enhancing openness and enabling the detection of red flags.

As costing does not always relate to a formal accounting method, the accounting principles are therefore not important in terms of costing. In other words, costing does not apply accounting principles. Cost accounting is, nevertheless, part of accounting and so it is related to the fundamental accounting principles. As it is employed as an inner tool by management, cost accounting does not, however, have to follow any precise standards, such as Generally Accepted Accounting Principles (GAAP), which vary in the uses of companies or departments.

  • Differences based on Decision Making

Costing is not utilized for decision-making, but just for classifying and recording expenses incurred over a period of time. Management uses cost accounting to decide crucially on cost control and costs and selling price determination. Cost Accounting assists management to make critical decisions that do not address the complicated business problems with worthwhile costs. Therefore, every management decision is based on the best judgment of the cost accountants who consider different elements in the preparation of the cost statements that may not be the same as other cost accountants.

  • Differences based on Reliability

Cost accounting is dependent on estimates and cannot thus be relied on. But it’s not simply estimations in terms of costs. The cost estimates are based on scientific reasoning techniques and actual statistics from the past. As such, the actuality is very close. Some scenarios exist in which the estimate is merely the process, such as tenders, setting standard costs, and so forth.

  • Differences based on Technique

Costing includes the techniques and processes for the assessment of manufacturing costs. Cost accounting, by contrast, refers to the form of accounting that involves costs, techniques of cost management application, and profit calculation.

  • Differences based on Process

Costing includes classifying expenditure according to the cost elements. It concerns the cost allocation of the cost center and the assessment of different possibilities in order to lower production costs. In contrast, the management uses cost accounting information for crucial production planning decisions, methods, technology, resources, etc.

  • Differences based on Nature

Costing is an essential aspect of cost accounting since it contains different approaches that underlie the overall cost accounting system. Cost Accounting, on the other hand, is not confined to costing procedures but includes also cost-related information, periodic statements, reports, and costs checking and monitoring.


A company consists of different operations that help to maintain it. Expenditure tracking and price management have become crucial for companies. Costing and accounting techniques permit companies to monitor costs and overall costs for production.

Costing is a procedure for determining the cost of a product based on the expenses of the production unit. Cost accounting is a bigger sector that is responsible for all costs incurred by a company during the manufacturing process. It is a crucial management tool since it helps to regulate recording costs.

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