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And finance Allah shmoop What's the difference between cost accounting

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and financial accounting Cost accounting is like the diary you

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keep locked up under your bed Financial accounting is like

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the memoir you publish later Cost accounting It's all the

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texts you and your best friend exchange talking about the

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people you people date Financial accounting It's the speech you

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give at their wedding Well basically comes down to a

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matter of audience and perspective Cost accounting targets and internal

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audience other people at the same company In other words

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cost accounting provides financial details for people inside of an

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organisation Teo do it better organize it better run it

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Better manage Better yet the margins for various products Yeah

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how do we optimize those The amount spent on private

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jet wax in a year How do we minimize that

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the expenses related to building the secret underground layer where

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you'll launch your bid for world domination with pinky and

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or the brain Yeah things of that nature Well managers

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and executives can use the data to make decisions The

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goal is to identify the amount that various items cost

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You know labor raw materials advertising sales margarita machines in

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the break room cost accounting also looks at how much

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each of those expenses contributes to the eventual bottom line

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Like do we actually need those expenses are the efficient

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Could we get him elsewhere Many Buffalo Man works in

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the accounting department at Little Thrones Inc The leading provider

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of toilets for doll houses They have three models of

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toilets A little dropper the original Little Throne Classic and

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a little thrown X L You know for the big

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and proud set The little dropper has sales of five

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hundred thousand dollars and earns an operating profit of two

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hundred seventy five grand You very high margin business It

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has an operating margin there of fifty five percent Well

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the classic little throne brings in revenue of eight hundred

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thousand and it contributes three hundred thirty six thousand to

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the bottom line Operating margins forty two percent Well the

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throne Excel has sales of just three hundred fifty thousand

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but the operating margins are the highest among the three

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product lines at sixty five percent That allows it to

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produce an operating profit of two hundred twenty seven thousand

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five hundred dollars Well based on this information Benny recommends

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the bigger marketing push for the throne X l if

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he can drive sales volumes higher for that product more

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of that money end up on the bottom line Well

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that kind of analysis represents cost accounting detailed information for

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people in the company meant to help make good decisions

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The info means to be forward looking like a Magic

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eight ball made of numbers The goal is to optimize

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what's going to happen now to financial accounting It gives

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information about the company's fiscal health for an external audience

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like people outside the firm people like investors and debt

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lenders and regulators It includes things like the Ten Cave

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A ten Q and the annual report filings You know

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the documents investors and regulators pore over to see how

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well or poorly the company is doing Financial accounting also

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includes documentation for audits Mess it up and suddenly there

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are people wearing SEC windbreakers in your office confiscating your

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computer And if things go badly while you end up

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restating results and well then sometime in the future you

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send your stock into a tailspin and possibly send the

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company into bankruptcy so you don't want to mess with

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the SEC time to announce the little thrones Quarterly results

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The Wall Street Benny and the management team don't want

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to give away too much information but they need to

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let their shareholders know how the company is doing so

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when they issue their report they don't break it down

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by product They give the total quarterly revenue one point

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six five million dollars and the total quarterly operating profit

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of eight hundred thirty eight thousand five hundred dollars And

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those numbers together produce an overall operating margin of fifty

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point eight percent But they keep the other details within

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the company Nothing about the individual products nothing about the

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secret world domination layer because it gets sent to outsiders

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Will the financial accounting info tends to be less detailed

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than the cost accounting figures It's just enough to get

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a picture of a company's financial situation without giving away

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too much And you know there are competitors and evil

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people out there right So you keep Mum different audience

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Different goal Also financial accounting has a backward looking vibe

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Executives use cost accounting toe optimize production going forward Financial

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accounting is more of a record of what's already happened

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You know they're reporting it It's basically closing the books

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on any given time period Think of it this way

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Cost accounting is like a detective's notes that he takes

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while trying to solve a mystery Financial accounting is like

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the true crime book he publishes Based on those notes

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he uses the notes to solve the case in the

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book while just sums everything up and you know provides

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a way to cash in All right another way to

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look at it Every year the Buffalo Man send out

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a year end news letter to all the friends and

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family on their Christmas card list It includes stuff like

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we're so proud of Bernie for getting an A in

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biology this year And we're so happy that Beatrice got

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her driver's license last month And well for Buster's latest

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trip to rehab finally does the trick You know things

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like that Think of that kind of reporting is the

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family communication equivalent of financial accounting Everything boiled down on

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Leah's Much information is you know necessary Meanwhile Benny Buffet

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Man keeps a diary and you know it includes stuff

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like Bernie originally got a C minus in biology but

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I threatened to sue the school so they upped it

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to a C and well Beatrice almost sideswiped a school

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bus during her third attempt on the driving test But

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I slipped the guy the D M V of fifty

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and well they let it slide Think of those examples

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like cost accounting more detailed different audience And Benny is

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well just writing it for himself An internal audience like

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his confessional riel sausage getting made type of information What

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