Difference Between Costing and Cost Accounting

During the industrial era, businesses began to expand, and the need for a system for tracking expenses and pricing was realized. Since then, costing and cost accounting has become essential business practices.


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

Key Takeaways

  1. Costing is determining the cost of producing a product or providing a service, considering the expenses incurred during production or service delivery; cost accounting is the systematic recording, analysis, and allocation of costs to understand and control a company’s financial performance.
  2. Costing is a specific activity that calculates the cost of goods and services. In contrast, cost accounting is a broader practice encompassing the management and analysis of all costs within a company.
  3. Cost and cost accounting is essential for effective financial management, but costing focuses on calculating specific costs, while cost accounting involves the comprehensive management of costs and financial performance.

Costing vs. Cost Accounting

The difference between costing and cost accounting is that costing is recognizing the cost of a product or service. In contrast, cost accounting is a mechanism for analyzing expenditures for a business.

Costing vs Cost accounting

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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 sort of a product or a service at any given timeA mechanism of accounting, analyzing, and interpreting costing data
MeaningProcess or techniqueBranch of accounting
ImportanceIt is not used for decision makingIt is an essential tool for management to determine future planning and budgets.
PrinciplesDoes not use accounting principlesThe application of accounting principles is essential.


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 giving costs for customers, employees, operations, distribution channels, and even subsidiaries.

The process of costing is not static. It often involves ‘variable cost.’ Such costs change about market activity, customer response, etc.

Other forms of costing include absorption costing, which remains the same, irrespective of other factors. The assigned cost is hence fixed—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 becomes even more relevant for businesses that manage large-scale production; costing, in such cases, involves determining all company expenses involved in the production process. This involves identifying labor costs, direct costs, and other overhead prices cost per unit that will depend on these expenses.

There are two primary purposes of costing;

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

Cost-assigning can be done via job, process, or standard costing.


What is Cost Accounting?

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

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

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

Cost accounting helps improve 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 essential tool for management to understand current control and plan the future endeavors of a business.

cost accounting

Main Differences Between Costing and Cost Accounting

  1. Costing refers to calculating the cost of a product or service at a given point. In contrast, cost accounting is a mechanism of recording, analyzing, and interpreting the expenses incurred by a company for a specific production period.
  2. Costing is a technique of asserting costs, while cost accounting is a branch of accounting that involves costing, application, and computation.
  3. Costing deals with determining, reducing, or controlling the cost of products or production per unit. Cost accounting collects data that a company’s management can use to understand and forecast profitability and plan future budgeting.
  4. Costing does not apply the core accounting principles, while cost accounting is based on applying these principles.
  5. Costing is a part of cost accounting, while cost accounting 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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