Monday, September 5, 2011

Finance and Management - 38

As mentioned in the last message, we would continue our discussion with the cost accounting concepts, however at various stages; it would be necessary to get to other concepts of organization and processes etc to really make the understanding of cost accounting really useful.  In today's blog we begin to understand the need for cost accounting.

Management to a great extent as we defined earlier is all about decision making. All the various specializations in management are essentially knowledge enhancements that would ease the dilemma for a manager. We began with discussing general accounting to assist the manager make decisions and see if the accounting practice used is apt in scenarios. Today we move to a more relevant managerial tool in the financial world called - cost accounting. It is generally also called managerial accounting given its utility to managers in decision making. There are still certain differences between the two, but for all practical purpose we will go by the understanding that both these are same.

Information about costs is very critical to a manager. The manager generally takes decisions only for the company he works for; there is no need for the information to be comparable to similar information from other organizations. The interest in the costs is primarily because the costs affect the price of the organizations' offering to its customers and there by the profit that it realizes.

We could continue this discussion in the next few blogs to clearly understand the concept.

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