Financial Accounting

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

and financial accounting Cost accounting is like the diary you

keep locked up under your bed Financial accounting is like

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

texts you and your best friend exchange talking about the

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

give at their wedding Well basically comes down to a

matter of audience and perspective Cost accounting targets and internal

audience other people at the same company In other words

cost accounting provides financial details for people inside of an

organisation Teo do it better organize it better run it

Better manage Better yet the margins for various products Yeah

how do we optimize those The amount spent on private

jet wax in a year How do we minimize that

the expenses related to building the secret underground layer where

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

or the brain Yeah things of that nature Well managers

and executives can use the data to make decisions The

goal is to identify the amount that various items cost

You know labor raw materials advertising sales margarita machines in

the break room cost accounting also looks at how much

each of those expenses contributes to the eventual bottom line

Like do we actually need those expenses are the efficient

Could we get him elsewhere Many Buffalo Man works in

the accounting department at Little Thrones Inc The leading provider

of toilets for doll houses They have three models of

toilets A little dropper the original Little Throne Classic and

a little thrown X L You know for the big

and proud set The little dropper has sales of five

hundred thousand dollars and earns an operating profit of two

hundred seventy five grand You very high margin business It

has an operating margin there of fifty five percent Well

the classic little throne brings in revenue of eight hundred

thousand and it contributes three hundred thirty six thousand to

the bottom line Operating margins forty two percent Well the

throne Excel has sales of just three hundred fifty thousand

but the operating margins are the highest among the three

product lines at sixty five percent That allows it to

produce an operating profit of two hundred twenty seven thousand

five hundred dollars Well based on this information Benny recommends

the bigger marketing push for the throne X l if

he can drive sales volumes higher for that product more

of that money end up on the bottom line Well

that kind of analysis represents cost accounting detailed information for

people in the company meant to help make good decisions

The info means to be forward looking like a Magic

eight ball made of numbers The goal is to optimize

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

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

like people outside the firm people like investors and debt

lenders and regulators It includes things like the Ten Cave

A ten Q and the annual report filings You know

the documents investors and regulators pore over to see how

well or poorly the company is doing Financial accounting also

includes documentation for audits Mess it up and suddenly there

are people wearing SEC windbreakers in your office confiscating your

computer And if things go badly while you end up

restating results and well then sometime in the future you

send your stock into a tailspin and possibly send the

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

the SEC time to announce the little thrones Quarterly results

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

to give away too much information but they need to

let their shareholders know how the company is doing so

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

by product They give the total quarterly revenue one point

six five million dollars and the total quarterly operating profit

of eight hundred thirty eight thousand five hundred dollars And

those numbers together produce an overall operating margin of fifty

point eight percent But they keep the other details within

the company Nothing about the individual products nothing about the

secret world domination layer because it gets sent to outsiders

Will the financial accounting info tends to be less detailed

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

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

too much And you know there are competitors and evil

people out there right So you keep Mum different audience

Different goal Also financial accounting has a backward looking vibe

Executives use cost accounting toe optimize production going forward Financial

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

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

on any given time period Think of it this way

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

while trying to solve a mystery Financial accounting is like

the true crime book he publishes Based on those notes

he uses the notes to solve the case in the

book while just sums everything up and you know provides

a way to cash in All right another way to

look at it Every year the Buffalo Man send out

a year end news letter to all the friends and

family on their Christmas card list It includes stuff like

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

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

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

trip to rehab finally does the trick You know things

like that Think of that kind of reporting is the

family communication equivalent of financial accounting Everything boiled down on

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

Man keeps a diary and you know it includes stuff

like Bernie originally got a C minus in biology but

I threatened to sue the school so they upped it

to a C and well Beatrice almost sideswiped a school

bus during her third attempt on the driving test But

I slipped the guy the D M V of fifty

and well they let it slide Think of those examples

like cost accounting more detailed different audience And Benny is

well just writing it for himself An internal audience like

his confessional riel sausage getting made type of information What