Cost accounting is a type of managerial accounting that considers budgets and the cost to produce items. Managers use the results from cost accounting to make decisions that maximize profits while minimizing expenses, according to Reference.com.Know More
It is essential for a business to track its activities, regardless of the goods or services it provides, according to Wikipedia. Cost accounting provides data for managers to understand their operational costs. This field of accounting began during the industrial revolution as a way to improve the decisions of business owners and managers.
Early methods of cost accounting looked at variable costs, which are directly proportional to the amount of production and fixed cost, which remain the same, regardless of the amount of production. Reference.com indicates variable costs include wages and raw material while fixed costs include rent, insurance and the owner's salary. In order for a business to meet expenses, its income must equal or exceed the sum of the variable costs multiplied by the number of units produced and the fixed expenses.
In modern business practice, standard cost accounting is less useful to management than it was during the industrial revolution, according to Reference.com. Companies have fewer variable costs and equipment is more specialized and complex, making fixed costs a much larger part of the overall formula.Learn more about Accounting
Throughput accounting is an offshoot of variable cost accounting that treats direct material costs as the only variable cost, while all other costs are assumed to be fixed, explains Richard J. Lukesh of Turnaround.org. The accounting approach was developed by Eliyahu Goldratt as part of the Theory of Constraints paradigm.Full Answer >
Intercompany accounting is the process by which firms reconcile a company's transactions to eliminate duplication among different departments that may result in overstating assets, according to Oracle. Companies must adjust accounting practices for intercompany transactions or face legal consequences.Full Answer >
People need accounting because it keeps a record of cashflow, produces financial reports and monitors business expenses of an organization, according to the Houston Chronicle. Accounting helps owners make vital decisions to help their companies thrive.Full Answer >
Operating budgets pay for day-to-day expenses, while capital budgets pay for major capital, or investment, spending, writes Kevin Johnston in an article in the Houston Chronicle's Small Business section. Understanding the differences between these budgets is critical to effectively managing business finances.Full Answer >