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Cost accounting

Cost accounting involves the measuring, recording, and reporting of product costs. From the data accumulated, companies determine both the total cost and the unit cost of each product. The accuracy of the product cost information produced by the cost accounting system is critical to the success of the company.

A cost accounting system consists of accounts for the various manufacturing costs. These accounts are fully integrated into the general ledger of a company. An important feature of a cost accounting system is the use of a perpetual inventory system. Such a system provides immediate, up-to-date information on the cost of a product.

There are two basic types of cost accounting systems: (1) a job order cost system and (2) a process cost system. Although cost accounting systems differ widely from company to company, most involve one of these two traditional product costing systems.

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