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What is the Difference Between Cost Accounting and Financial Accounting?

Being an accountant or bookkeeper can be a lucrative field. Before you enter the accounting field, however, you must increase your knowledge of accounting and learn many concepts and terms. This can be achieved by attending an accounting program at a vocational school like Interactive College of Technology (ICT). During this program, you will learn accounting principles including the difference between cost accounting and financial accounting. You will also learn about accounts payable, accounts receivable, payroll, and general ledgers.

At Interactive College of Technology, you have the option of getting an accounting diploma or degree. Both are great ways to enter the accounting field. Whether you are looking to be an accountant, accounts payable clerk, reconcilement clerk, or one of the other important people that make up the accounting department, a diploma or degree at Interactive College of Technology is a great start. So, before we identify the differences between cost accounting and financial accounting, lets first look at what each is and some of the terminology that you will need to understand to comprehend these accounting topics.

What is Cost Accounting?

Cost accounting is the determination of the actual cost of manufacturing a product or providing a service by calculating the expenses within the supply chain. Cost accounting helps management understand the profitability of the company and make better budget predictions. Some of the terminology that will help you understand cost accounting includes:

Fixed Costs – expenses that happen every month regardless of input or output. An example of fixed costs is rent. If you have a warehouse lease that states you must pay a certain amount for the next three years then this is a fixed cost you must pay each month, regardless of profit or loss.

Variable Costs- expenses that fluctuate with business changes like production costs, supplies, and labor. A good example of this is the cost of materials. If the cost of materials goes up, then the variable costs are higher because it costs more to manufacture the same product.

Break Even Point – the point where expenses equal sales. All sales beyond the break-even point are profit.

Cost Volume Profit Analysis – calculating the number of units that need to be sold to reach the break-even point and start accruing profits.

Standard Costing System – allows standardization of cost accounting by assigning an average cost to direct costs like labor and materials. Aimed at simplifying the process of cost accounting.

CVP Analysis – cost volume profit analysis determines the total fixed and variable costs based on the total production of products.This tells you how much money you need to keep your business going.

Direct Costs – the expenses incurred by a business that directly account for the product or service. This includes the lumber, nails and other construction supplies to build a house or the components to create a mobile device.

Indirect Costs – direct costs directly lead to goods sold, whereas indirect costs such as HR, taxes, utilities, and marketing also must be recognized and recorded.

Operating Costs – the ongoing expenses from the normal operations of the business. Operating cost is calculated by adding cost of goods sold with all the other costs of running the business.

What is Financial Accounting?

Financial accounting is the process of recording and reporting a business’s transactions to identify profit and loss over a set period of time. It includes the amount of money that went into and came out of the business. The best way to complete financial accounting practices is to prepare financial statements used to gauge the financial performance of the business to outside third parties. Some of the terminology that will help you better understand financial accounting includes:

Income Statement – also known as the profit and loss statement, it identifies the business income over a set period of time. On an income statement, the net income equals revenues minus expenses.

Balance Sheet – a statement of assets and liabilities after a specific accounting period, quarterly, bi-annually or annually for example. On the balance sheet, the assets equal the liabilities plus the stockholders’ equity.

Stockholders’ Equity – public companies that sell stock shares have to provide investors with financial information such as earnings, earnings per share, and more. This helps investors understand their investment.

Cash Flow Statement – illustrates the actual flow of cash in and out of the business over a set period of time. The different flows of cash represent the operating, investing, and financial activities of the business.

Statement of Retained Earnings – this document explains the dividends paid from earnings to shareholders and the earnings kept by the business during a set period of time.

What is the Difference Between Cost Accounting and Financial Accounting?

There are a few differences between cost and financial accounting. Where cost accounting is a system that keeps track of the costs incurred by a business, financial accounting focuses on the financial position of the business. As both record historical cost, only cost accounting records the predetermined costs. Cost accounting is theinternal reporting of the business finances and financial accounting is helpful for both internal and external stakeholders to understand the position of the business to make decisions about its future. The purpose of completing cost accounting procedures is to reduce and control costs, whereas financial accounting statements help keep a record of financial transactions.

Some additional differences between cost and financial accounting have to do with the reporting requirements. While cost accounting is only mandatory for manufacturing firms, all businesses must create financial accounting statements. While both cost and financial accounting are different, they both play a role in a business’s accounting activities.

How Do You Become an Entry-Level Accountant?

Whether you want to start working as a bookkeeper at a small business or join a large organization and specialize in a specific role in a larger accounting department, an easy way to start is by attending a vocational school program. At Interactive College of Technology, you have the option to focus on a diploma or degree. In addition to the curriculum that is taught by industry experienced instructors, you will work toward certification in QuickBooks and get 135 hours of real-world experience. Plus, you get career placement support to help you find a job after graduation or during a work gap anytime during your career in the future.

What Do You Learn During a Vocational Program?

There is a set curriculum that both the diploma and degree program will focus on. In addition, there is additional coursework that will put the students’ knowledge into practice. Both programs will review GAAP protocol, proper office automation techniques, using professional business applications, mastering software like SAGE and QuickBooks Pro, and training on business application software including Microsoft Office.

In addition to the coursework of the diploma program, the degree program supplements the curriculum with cost accounting, federal tax procedures, and the principles of entrepreneurship. Depending on your career path and interest in advancement, you can choose to get a diploma or degree at Interactive College of Technology.

Why Choose Interactive College of Technology?

There are many reasons to choose Interactive College of Technology. From hands-on training to career placement and everything in between, ICT creates an environment where adults can learn on their schedule. You build the knowledge and confidence to succeed in an accounting role.

Hands-on Training

At Interactive College of Technology, we take an interactive approach to learning. In addition to classroom lectures, we pride ourselves in real world training using standard industry case studies and examples of real corporate finances. This practice is important to hone your skills, so you are prepared for day one of your new accounting career.

Industry Recognized Certifications

During the accounting program, we prepare you to take important certification exams that will supplement your education and prove your proficiency in accounting. These certifications include QuickBooks and Microsoft Office. By the end of the accounting program, you will be prepared with the confidence and knowledge to take the certification exams. Many employers look for candidates that have already taken the initiative to complete certifications so they can save some resources on initial on-the-job training. These certifications also give you a competitive advantage in this crowded workforce.

Financial Assistance

Our financial assistance department will work with you to identify the helpful opportunities you will have to pay for tuition and other fees associated with the school’s training. From FAFSA and scholarships to veteran benefits and more, we help those that qualify meet the important deadlines to receive helpful assistance with college tuition.

Externships

A great benefit to attending accounting classes at Interactive College of Technology is the externship opportunities. You will receive 135 hours of real-world experience. Under strict supervision, you will put theory to work in real situations and on real accounting cases. This is not only a great way to get work experience for your resume, but you may even find your new employer working an externship at a community organization.

Career Placement Support

One of the best benefits of attending Interactive College of Technology is the career placement support you get, that follows you throughout your career. From resume building and interview preparations to job fairs and networking with community employers. We identify your passion and find the right fit for you to enjoy your career.

Approved for VA Benefits

We are proud to participate in training programs that provide assistance to those that have served. Speak with our financial aid staff to learn more about the many benefits that both veterans and active-duty students may be eligible for.

Flexible Schedule

Whether you have other responsibilities that are completed in tandem with your education or need a flexible schedule to complete the accounting program, we offer day and evening classes. This way, you have a better work/life balance. Take care of life and still get the education you dream about.

Final Thoughts

If learning the difference between cost accounting and financial accounting interest you,it may be time to learn more about the accounting and professional business applications program offered at Interactive College of Technology. Start working in a growing industry in a job that is both challenging and rewarding. The first step of any journey is always the hardest so let Interactive College of Technology walk with you every step of the way to a new career.

Want to Learn More?

Ready to start working in an entry-level role as a bookkeeper or accounting specialist? At ICT, our Accounting & Professional Business Applications program will teach you the fundamentals of accounts payable / receivable, payroll, general ledgers, reporting / data entry, and office automation. You will be prepared to support any size organization and make a difference in your accounting department.

Let’s take the first step together! Contact us now to learn more.

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