Cost Accounting

Definition

The term cost accounting is used to describe a specialized accounting system that reports the expenses associated with running a specific process or producing a product.  Cost accounting helps the company's management team to understand how efficiently an operation is performing.

Explanation

Cost accounting is one of several specialized accounting systems.  For example, financial accounting is used in the preparation of financial statements such as the balance sheet, while tax accounting is used when filing income tax returns.

Cost accounting involves gathering, reporting, and interpreting detailed cost data. This information is used by managers to better understand how very specific changes can improve the performance of that process.

For example, a smart phone manufacturer might use cost accounting data to understand the expenses associated with assembling each unit, while a call center might examine their associate's training costs to handle specific calls.  Understanding cost data at a very granular level allows managers to make both actionable and impactful decisions.

Related Terms

FASB, internal controls, Generally Accepted Accounting Principles