Cost Accounting vs. Financial Accounting: Which path is right for you?

Cost vs. Financial Accounting

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.

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!

Definition of cost accounting and financial accounting

Let’s start with a look at the basic job functions of cost accounting vs financial accounting. The biggest differences are in the areas of compliance, accounting standards and target audiences.

Basically, cost accounting is internal. Cost accounting by definition is the tracking and reporting of costs associated with products and processes. Cost accountants use this information in cooperation with management to improve profitability. But, 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: Job scope and qualifications

Cost accounting is one component of management accounting's broader concepts, 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.

Generally speaking, cost accountants report a much more granular level of detail than financial accountants. 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 have good 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.

Cost accountants usually have a bachelor’s degree, often in accounting, finance, or a closely related field. Although you usually don’t need a CPA to land a cost accountant job, the certification can help you apply for higher positions. Cost accountants can go on to become senior accountants or management accountants.

On the other hand, 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.

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 these are roles you are interested in, you may want to consider applying for CPA licensure.

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.

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.

Who hires cost accountants and 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.

What is the financial accounting hiring potential? 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.

You can explore recent salary information on certain roles in the cost accounting sector here.

Financial accountant vs. senior accountant

Of course, 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 master’s degree in accounting and/or a CPA. Senior accountants are the lead “numbers people” in companies that have accounting departments. They keep the company organized, financially speaking, 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.

You can explore recent salary information on certain roles in the financial accounting sector here.

Available career paths

Here are some recent job listings to better explain how accounting positions can differ.

Upper-level cost/management accounting

The first example is from Actelion Pharmaceuticals, part of the Johnson & Johnson family of companies. They are looking for a senior financial analyst, which is an upper-level cost or management accounting position. Here are some of the role highlights:


· 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 Senior Leaders to ensure transparency and alignment to business strategies and goals

· Ensure compliance with finance accounting policies and internal controls, support internal/external audit cycles, e.g., Business Plan, Long Term Financial Plan, through engagement with key business partners, providing templates, data analysis and consolidation

· Lead the financial reporting process by fulfilling requirements accurately and on a timely basis

· 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

The position also calls for a master’s or bachelor’s degree in finance, accounting or business, and prefers candidates with a CPA, CMA, CIMA or other advanced accounting certification. These credentials will help the successful candidate navigate through some of the job requirements, especially those requiring leadership and the application of practical knowledge.

Upper-level financial accounting

The next example is from Ernst & Young, one of the Big 4 firms that hires many accountants each year. The firm frequently needs senior-level accountants for auditor and assurance positions. For example, here’s a summary of a job post for a managing auditor position:

· Plan and perform audit procedures in accordance with U.S. GAAS, including PCAOB rules and regulations, for private and public company financial statements prepared in accordance with U.S. GAAP

· Provide audit services, demonstrating to clients that there is real value in the audit process, above and beyond the regulatory mandate

· Apply knowledge of SEC rules and regulations over financial reporting

· Apply data analytics to deliver high-quality audits, providing business insight and value to clients

· Identify audit risks, obtain evidence and generate unique insights for clients

· Prepare, analyze and verify financial statements and other records, using accepted accounting and statistical procedures to assess financial condition and facilitate financial planning

· Provide accounting insights to clients in a clear and concise manner, including insights into complex accounting issues such as revenue recognition, share-based compensation, business combinations and internal controls

· Understand the client's industry and recognize key performance drivers, business trends, and emerging technical and industry developments

As you can see, the position calls for the application of accounting knowledge. Therefore, the position prefers a master’s degree in accounting, economics, finance and several years of experience. The position also demands an active CPA license in your work state.

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. Although some costs are involved, the long-term benefits usually outweigh the short-term expenses. What’s more, you can utilize CPA discounts and CMA codes to help reduce your overall costs.

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—or even a CPA + CMA combo—could benefit 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. Explore Becker’s CMA offerings here.

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 often 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 these candidates should still pursue the CPA, they may want to avoid public accounting or plan for a 1-2 year exit if they pursue a job there. 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.

Final thoughts

The field of accounting is interesting because it contains so many subfields that appeal to different personalities. But what if you’re still torn between cost accounting and financial accounting? Some accountants enjoy the rationality and logic of cost accounting, but others are more drawn to working with established sets of rules, often working as financial accountants.

Ultimately, it’s all about identifying your strengths and figuring out how to apply them to a successful career.


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.

You can follow Stephanie on her social media channels:





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