Impact of Cost Accounting

3133 Words Jan 25th, 2011 13 Pages
IMPACT OF COST ACCOUNTING ON FINANCIAL DECISION

INTRODUCTION
In the modern business world, the nature and functioning of business organizations have become very complicated. They have to serve the needs of variety of parties who are interested in the functioning of the business. These parties constitute the owners, creditors, employees, government agencies, tax authorities, prospective investors, and last but not the least the management of the business. The business has to serve the needs of these different category of people by way of supplying various information from time to time. In order to satisfy the needs of all these group of people a sound organisation of accounting system is very essential.
In the ancient days the
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(iv) It fails to take into account the impact of price level change : In the modern

4 Cost Accounting and Financial Management inflationary conditions the price level has significant impact over financial statement. Under financial accounts, assets are shown at the actual or historical cost. Consequently depreciation is also charged on actual or historical cost. This under charging of depreciation will distort the profit figure.

(v) Possibility of manipulation of financial accounts : Very often financial accounts are manipulated at the whims and fancies of management so as to project better image in the minds of prospective investors. The chief forms of manipulating the financial accounts assume the form of over or undervaluation of inventory, excessive or inadequate provision for depreciation, creation of secret reserves, etc. (vi) It fails to exercise control over resources : Financial accounts fail to exercise control over materials, labour and other expenses incurred in a business enterprise.
As a results, avoidable wastages and losses go unchecked under this system of accounts. (vii) It fails to provide adequate data for price fixation : Financial accounts fail to provide adequate cost data on the basis of which selling price is fixed. In the absence of fixation of prices in advance, it is not possible to supply quotations to the prospective customers. To that

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