Definition of Financial Cost & Management Accounting

by Marquis Codjia; Updated September 26, 2017
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In an economy replete with round-the-clock financial news and corporate reorganization data, companies pay attention to the way they promote organizational profitability and increase their market shares. Central to corporate strategies are management accounting procedures that organizations select in the short- and long-terms.

Financial Cost

Financial costs incorporate expenses that a company incurs through operations, from factory costs to surcharges down the supply chain. Examples include the cost of raw materials, semifinished products and completely finished goods along with administrative expenses, such as rent, salaries, insurance and utilities. Organizations record financial costs in the statement of profit and loss.

Management Accounting

Management accounting is a business practice that allows a company to chart an adequate profitability plan in the short-term, furthering a sound control of administrative expenses as well as financial costs in manufacturing process, according to Accounting for Management, a financial and managerial accounting resources portal. Also called cost accounting, this branch of accounting focuses on budgeting and financial planning.

Relationship

Management accounting and financial cost are distinct terms yet they often interrelate. For example, financial cost analysis is an important parameter to which management accountants pay attention when reviewing corporate data and charting cost-efficiency strategies, according to the Asian Development Bank.

Significance

The ADB reports that management accounting and financial cost analysis are key functions in the modern-day economic landscape, providing organizations with the tools and methodologies necessary to run thriving businesses. Companies lacking effective financial cost procedures and controls may be at a strategic disadvantage vis-à-vis the competition in the short- and long-terms.

Budgeting

Budgeting is an essential component of management accounting, steering the financial awareness campaigns that corporate executives engineer to rein in costs and maintain economically afloat businesses. Various personnel engage in budgeting activities, including financial accountants, cost accountants, business analysts, financial reporting accountants and budget analysts, indicates the U.S. Department of Labor's Occupational Information Network (O*NET OnLine).

Bookkeeping

Bookkeeping is the primary activity through which organizations record transactional data. Professionals performing bookkeeping tasks include junior accountants, accounting clerks and bookkeepers. These professionals typically debit and credit financial accounts — such as assets, liabilities, equity, expenses and revenues — under the tutelage of financial managers, according to the U.S. Bureau of Labor Statistics.

Financial Reporting

Financial reporting allows organizations to reveal their business performance to investors and other analysts, enabling top leadership to identify areas experiencing slow or no sales growth. A typical financial report includes four accounting statements: a balance sheet, a statement of income, a statement of cash flows and a statement of retained earnings.

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.

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