What exactly is cost accounting?
submitted by Joe Kerr

Charles

It is an accounting method intended to account for costs before they are made. This helps businesses see a projection of their financial future when working on expensive projects. It is especially useful for contractors.

You can read more on job cost accounting at http://job-costing.a-systems.net.

Adyn

It's not just tracking costs, but associating those costs with the product. That product might be be something manufactured. It could also be something in construction, like a new bathroom, or a whole building.

By associating the costs with the product, you can better calculate how much you need to charge in order to turn a profit.

Bryan

Cost accounting--also known as job cost accounting or job costing--is a critical tool in the construction industry. Because construction projects have so many costs associated with them, it can be difficult to track all the spending. This can result in unwanted surprises at the end of the job when the contractor finds out there is no profit left.

Job costing software is used to track those costs so they don't get out of control. This way, contractors can see where costs may be out of line with their budget. This helps them keep costs down, and avoid unwanted surprises.

Software makes cost accounting a lot more streamlined. As you enter expenses into your accounting system, you can tie those costs to a certain product or job. This allows managers to see reports detailing how much individual business activities are costing them, rather than just seeing a total amount of costs all lumped together.

Jerrich

It's a way to track manufacturing expense. If you produce roller skates, you need to track the cost of the skate, the wheels, etc. You also need to account for the cost to run the machinery used to produce that particular item, the cost to pay the employees working on that item, and anything else associated with that specific item.

Cost accounting helps managers see which items are profitable, and helps them make decisions about where to cut costs, raise/lower prices, etc.

Jerry Atrick, III

You can compare cost accounting to financial accounting. Financial accounting focuses on the business, as a whole. How much money goes in, and how much money goes out. They can forecast whether the company is going to be profitable or not.

Cost accounting is very similar. The difference is that there is a bigger focus on specific products and services. Rather than looking at the whole business, cost accounting allows you to see profitability for those the businesses activities on an individual basis. For example, a restaurant may find that it costs too much to make their famous dessert. Management can the determine if there is a way to cut costs, or if it would be feasible to raise prices to compensate for the high cost of production.