Difference Between Costing and Cost Accounting

During the industrial ere, businesses began to expand and the need for a system for tracking expenses and pricing was realized. Since then both costing and cost accounting have become an essential business practice.

A system of recording and determining prices of production process and products became common. The modern term for the same is called cost accounting.

Costing vs Cost Accounting

The difference between costing and cost accounting is that costing is the process of recognizing the cost of a product or service whereas cost accounting is a mechanism of analysing expenditure for a business.

Costing vs Cost accounting

Costing is essentially the process of asserting the prices and costs of products. It is a system of determining internal financial functioning.


Comparison Table

Parameter of ComparisonCostingCost Accounting
DefinitionA method used to determine the sot of a product or a service at any given timeA mechanism of accounting, analysing and interpreting costing data
MeaningProcess or techniqueBranch of accounting
ImportanceIt is not used for decision makingIt is an important tool for management to determine future planning and budgets.
PrinciplesDoes not use accounting principlesApplication of accounting principles is important.


What is Costing?

Costing is a process that functions within a system of assigning costs to products and services in a business. Fundamentally costing involves assigning costs for customers, employees, processes, distribution channels and even subsidiaries.

The process of costing is not static. It often involves ‘variable cost’. Such costs change with regard to things such as market activity, customer response etc.

Other forms of costing include absorption costing, such costs remain the same, irrespective of other factors. The assigned cost is hence fixed. for example, insurance and renting costs.

The process of costing involves determining the value of a product by calculating and adding the production cost. This also applies to services in a business.

Costing become even more relevant for businesses which manage large scale production, Costing in such cases involves determining all expenses of the company that are involved in the process of production. This involves identifying labour costs, direct costs and other overheads. The cost per unit will depend on these expenses.

There are two main purposes of costing;

  1. Internal Report: Costing enables the management to identity unnecessary expenses and divide methods to increase profitability.
  2. External Report: The cost allocation system enables the recording of all costs within the companies balance sheet. It is essential to maintain such an inventory.

Assigning of costs can be done via job costing, process costing and or standard costing.


What is Cost Accounting?

Cost accounting refers to the process in which all company expenses are recognized with the purpose of maintaining cost efficiency. It is a business practice that enables strategic planning and target management, by providing transparent visibility of cost information.

The process of cost accounting includes determining the amount of money spent on services products and processes in an organisation. It further involves the classification of expenses for analysis.

Additionally, cost accounting provides a reliable system of cost audit, to prevent fraudulent errors. This further gives out reliable information to management and operatives.

Cost accounting helps in improving the efficiency by identifying and fixing prices of activities within the venture. It further enables in determining the stock requirements and for the future, preventing situating like overstocking and understocking.

Cost accounting is also known as managerial accounting. It is an important tool for management, to understand current control and plan the future endeavours of a business.

cost accounting

Main Differences Between Costing and Cost Accounting

  1. Costing refers to the method of calculating the cost of a product or service at a given point, while cost accounting is a mechanism of recording, analysing and interpreting the expenses occurred by a company for a certain production period.
  2. Costing is a technique of asserting costs while cost accounting is a branch of accounting that costing, application and computation.
  3. Costing deals with determining, reducing or controlling the cost of products or production per unit, while cost accounting, collects data that can be used by the management of a company to understand and forecast profitability and plan future budgeting.
  4. Costing does not apply the core principles of accounting while cost accounting is based on the application of these principles.
  5. Costing is a part of cost accounting, while cost accounting itself involves many other mechanisms. Cost accounting is not confined to just costing.


  1. https://doc1.bibliothek.li/aaw/FLMF019840.pdf
  2. https://www.cfoconsult.nl/wp-content/uploads/2012/10/ABC-support-document_Study-Unit-2.pdf
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