The History of Cost Accounting

Accounting is a practice that dates back centuries. Luca Pacioli, an Italian mathematician from the 15th century, is known as the “father of accounting.” He developed the bookkeeping system of accounting still used today, known as the double-entry method. This involved using debits and credits to balance and maintain accounting records.

Luca Pacioli’s name has a lot of significance in the accounting world. The double-entry method is still widely used, and no other method has ever been capable of replacing it. It works, and has for centuries. Pacioli's book, “Everything About Arithmetic, Geometry and Proportions,” was the only one used for accounting study until the late 16th century.

Cost accounting today is recording budgeting, analyzing and determining costs for products manufactured. Although Pacioli did not actually invent cost accounting, he was very interested and concerned with tracking variance costs and working with budgets. This is where the idea of cost accounting came from.

In cost accounting, the two main types of costs that analysts are interested in are variable costs and fixed costs. As people studied cost accounting, they realized that certain costs were always the same, while other costs varied. The costs that remained the same are called fixed costs. These costs include things like rent, utilities, office expenses and depreciation. These are costs the company figures on each month, with virtually no change in data at all.

Variable costs, on the other hand, represent costs that vary based on usage. These costs include many different things including labor, raw product costs, machine repair and maintenance costs, supervisory costs and many more. These costs vary based on production levels and the costs of goods. Business owners watch these costs closely to keep them minimized.

Cost accounting is based on the theory of making the most products or providing the most service for the least amount of money. Sometimes increasing production of an item by a certain percentage causes little to no increase in cost, but a much greater increase in produced material or products. Analysts try to find the point in production where the costs equal the value of the product. This is the break-even point. From here it is their job to determine which way production goes to make the most profit for the least cost possible.