Cost Accounting vs. Financial Accounting: Which Path Is Right for You?
During their career lifetime, many accountants will enter one of the four branches of accounting: financial accounting, management accounting (which includes cost accounting), tax accounting or auditing. Tax accounting and auditing are fairly niche areas, but what about financial and cost accounting? What is financial accounting and how does it differ from other careers in the industry?
If you’re unsure of your career path in accounting, you can rely on your interests to guide you. Of course, you can’t choose the best career path for you without knowing what skills you’ll need and what your day-to-day workload might be. We’re here to help you compare and contrast between cost accounting and financial accounting to better inform your career options. Let’s explore both of them!
Summary
Cost accounting focuses on internal reporting and operational efficiency, and financial accounting prioritizes external reporting and adherence to regulatory standards. Understand the differences to identify the career path that best suits your interests and skills.
What Is Cost Accounting vs Financial Accounting?
Comparing cost accounting vs financial accounting starts with a look at their basic job functions. The biggest differences are in the areas of compliance, accounting standards, and target audiences.
What Is Cost Accounting?
Cost accounting is internal by definition, the tracking and reporting of costs associated with an organization's products and processes. Cost accountants use this information in cooperation with management to improve profitability.
What Is Financial Accounting?
In contrast, financial accounting is external in nature. Accountants focused on financial accounting follow accepted standards to prepare financial statements that report on the position of a business or organization.
Cost Accounting vs Financial Accounting Qualifications
What Are the Qualifications for Cost Accountants?
Generally speaking, cost accountants vs financial accountants report a much more granular level of detail. For example, they might generate reports based on individual product costs and every step in the supply chain. As a result, cost accountants must be able to determine and explain how external and internal factors can affect costs. It’s no surprise, then, that cost accountants must have great research skills.
Although the regulatory framework for financial reporting is very governed, cost accountants prepare internal documents that don’t have to follow regulatory guidelines. As such, while credentials like the Certified Management Accountant (CMA) certification help boost your skills (and job opportunities), you're not legally obligated to earn them. However, certified cost accountants can go on to become senior accountants or management accountants in leadership roles.
Cost accountants usually do need at least a bachelor’s degree, often in accounting, finance, or a closely related field.
What Are the Qualifications for Financial Accountants?
Most financial accountant positions require a bachelor’s degree; sometimes an associate’s degree is acceptable. Like cost accountants, financial accountants are often promoted and may find themselves in positions like senior accountant or accounting manager if they hold credentials like a CPA licensure.
Cost Accounting vs Financial Accounting Scope
What Is the Scope of Cost Accounting?
Cost accounting is one component of the broader concepts of management accounting, including budgeting, finance, and analyzing returns on investments. Accounting professionals focused on this specialty apply costing methods and other approaches to calculate specific business expenses, and deliver analytical information that is crucial to making businesses run effectively.
For example, cost accountants might calculate the cost per unit for a manufacturer, or scrutinize a supply chain's expenses and execute profitability analyses. Cost accountants can also be asked to create internal costing systems that constantly track and evaluate inventory costs. They might analyze everything from a product’s research and development to the administration, manufacturing, and distribution of that product.
What Is the Scope of Financial Accounting?
Financial accountants summarize and report on a company’s profitability, ensuring financial accountability. Namely, they classify, record, and analyze different financial statements, mostly for external audiences. Their end goal is to report numbers and increase both a company’s profitability and transparency. Accountants who focus only on financial accounting are responsible for preparing balance sheets, cash flow statements, and income statements.
Financial accountants prepare standard reports for outside audiences. For instance, a company or organization may distribute its reports to creditors, credit rating agencies, investors, regulatory agencies, or other stakeholders. Usually, these statements must follow specific formats and include certain standard content, as directed by GAAP (Generally Accepted Accounting Principles) or international reporting standards.
Cost Accounting vs Financial Accounting Roles & Responsibilities
As a cost accountant, you might prepare monthly and quarterly reports for managers to make data-backed decisions. These reports help managers determine what products to manufacture or discontinue. They also help set selling prices because they give managers a full understanding of their goods' cost.
Depending on the organization, cost accountants might also suggest modifications to policies and procedures to boost cash flow. For example, cost accountants might recommend policy changes after considering rates of labor, depreciation and overhead costs. Overall, one of the biggest roles of a cost accountant is to look beyond the numbers. In other words, they appreciate the “why” and not just the “what” behind figures on a financial report. Although cost accountants carry out analyses via monthly reports, they are increasingly expected to understand data on a real-time basis. This keeps businesses flexible, allowing them to respond to market influences quickly.
As you move into high-level cost accountant roles, you'll take on responsibilities like:
- Control of key financials: revenue, OPEX, CAPEX, and inventory
- Prepare/present diligent analytics on variances vs budget and lead meaningful conversations with budget owners and leaders to ensure transparency and alignment
- Ensure compliance with finance accounting policies and internal controls, support internal/external audit cycles
- Maintain/update the financial structure in the local systems, to remain up to date and serve the business needs
- Support the deployment of new technology solutions and financial procedures
- Identify executional improvement initiatives and apply technology to increase the efficiency and effectiveness of internal processes
While cost accounting aims to improve a company’s overall profitability and processes, financial accounting is more revenue-based. Accountants who focus on financial accounting are responsible for a company’s external reports, and these reports help to analyze the nature of expenses and profits. Furthermore, they ensure that all financial reports adhere to established accounting standards.
As you move into high-level financial accounting roles, you'll being to lead financial strategy, managing risk, overseeing teams, and advising executives on business decisions, including:
- Oversee monthly, quarterly, and annual financial statement preparation
- Ensure compliance with GAAP, IFRS, and regulatory requirements
- Analyze financial results and identify trends, risks, and opportunities
- Support executive leadership with financial insights and recommendations
- Establish departmental goals and performance expectations
- Design and maintain strong internal control procedures
- Monitor compliance with tax and reporting requirements
- Assist with annual budgeting processes and monitor actual results
- Recommend corrective actions when variances occur
Cost Accounting vs Financial Accounting Career Paths
Who Hires Cost Accountants vs Financial Accountants?
Cost accountant positions are common in manufacturing and other industries that produce a tangible product or process. As such, Fortune 500 companies often hire cost and management accountants. In fact, cost accountants are vital members of the finance teams at large companies because they help managers optimize limited resources while improving overall business operations. And in today’s market, that’s a skill worth having.
Accountants who specialize in financial accounting are an asset in both the public and private sectors. They help a variety of stakeholders better comprehend a company’s effectiveness and profitability through its financial statements.
Advanced Financial & Management Accounting Positions
In the accounting field, you can move up the career ladder fairly quickly if you position yourself for advancement. So, let’s discuss some of the higher positions you can pursue from these two roles.
Cost Accountant vs Management Accountant
Though you might start in a cost accounting position, you may find that you’re soon promoted to a management accountant. Although the roles tend to work together, management accountants have more strategic responsibilities for decision-making, cost control, and risk management. In many ways, they take the data created by cost accountants and create a plan to improve business performance.
Accounting majors who have their bachelor’s degree or higher, and have also completed (or are on track to complete) their CPA or CMA (Certified Management Accountant) requirements may find that they are quickly promoted. Or, they might be able to land a management accountant position right away.
Financial Accountant vs Senior Accountant
If you choose a financial accountant's path, you can find career growth, too. Financial accountants may advance to senior accountant roles, especially after obtaining a CPA license. Senior accountants are the lead “numbers people” in companies that have accounting departments. They keep the company financially organized and manage teams of other accountants.
Although their daily tasks can vary, senior accountants generally interpret financial statements for management and analyze financial reports to help the company prepare budgets and manage growth. Senior accountants might also maintain the general ledger or other financial records and investigate budget issues as they arise.
Cost Accounting vs Financial Accounting: Which Is Best for You?
Cost accounting might be right for people who love logic games, as math and reasoning skills are critical in order to analyze, compare, and interpret costs. In this field, it also helps to understand computers and accounting software. Cost accountants must be highly organized, as they have to keep track of many different materials. Moreover, cost accountants must be flexible because they might be asked to analyze data from different business aspects.
Financial accounting is best for people who enjoy working within an established set of rules while sometimes operating within a grey space. Financial accountants should be very comfortable with regulatory reporting, account reconciliation, GAAP, and preparing financial reports. If you prefer a more structured work environment, this may be the career path for you.
Do You Need a CPA or CMA?
Accounting credentials like the CPA, CMA, and others can help advance your career more quickly, as an investment into honing your expertise and opening more and higher-level career opportunities.
A CPA license could benefit anyone going towards cost or financial accounting, as the CPA Exam covers many of the topics that these professionals use daily.
However, the CMA certification—or even a CPA and CMA—benefits professionals interested in management accounting. The CMA is often required for finance managers and controllers, so it might be worth pursuing depending on your career goals.
A Word About Public Accounting
Candidates who have excelled in their financial accounting classes may be a great fit for a public accounting firm. Public accountants serve taxpayers, businesses, governments, and nonprofit organizations. Therefore, public accountants might maintain a company’s financial records or audit financial statements that could be used by banks or investors. They may also give tax planning advice or offer consulting services that help businesses implement accounting systems. Public accountants seeking career advancement pursue the CPA license.
If you struggled in your cost accounting, controllership, or analytics curriculum, then public accounting, and other careers focused in the financial accounting niche may be ideal for you.
However, cost accounting, in particular, is a niche field of accounting. And while the CPA license is still useful for cost accountants, a CMA credential will serve them better long-term if they're focused on staying in that career path. The skills needed for cost accounting don’t overlap much with auditing or taxation, so keep that in mind if your heart isn’t really set on cost accounting long-term.
Start Building Your Career
The field of accounting is interesting because it contains so many subfields that appeal to different personalities. Ultimately, it’s all about identifying your strengths and figuring out how to apply them to a successful career.
Whether cost accounting or financial accounting, Becker has the support to help you advance your career with credentials. Try our CMA Exam Review or CPA Exam Review FREE for 14-days
This article was written by Stephanie Ng, founder of I Pass The CPA Exam, a CPA Exam website that aims to help students around the world achieve their goal of becoming CPAs. Her guidance and mentorship have helped hundreds of thousands of candidates pass their CPA Exams.
Stephanie is the Executive Committee member responsible for overseeing the financial aspect of New Sight, a charity in Hong Kong. She manages accounting, taxation, financial management and compliance for the organization. She created I Pass The CPA Exam in 2010.
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