What is cost accounting and how does it benefit my company?

When we talk about accounting within a company, either in company management or in terms of training, we usually think of financial accounting and do not pay attention to another branch of accounting that is crucial for decision making. We are referring to analytical accounting or also known as cost accounting, probably because it is not mandatory and does not have a specific regulation, so it is not always given enough attention.

Analytical accounting consists of a set of techniques used to study in detail how a company's revenues and costs are distributed, differentiating factors (customers, departments, products...), with the aim of obtaining useful information to help internal decision making.

Why apply cost accounting?

Although analytical accounting is not mandatory, many companies today use it as a tool to control their business in an increasingly complex and competitive environment.

Although there are standard models of cost accounting, the ideal is to create one or adapt it to the characteristics of the company. In this way, we will be able to analyze in depth the revenues generated, the costs incurred, the profitability of the different lines of business or products, and understand in detail the reasons for our results.

The reasons for applying analytical accounting can be very varied:
  • Deciding whether to launch a new product.
  • To close or open a department.
  • Reduce or increase the price of services.
  • Measure the contribution of each product to the company's likely profit or loss.
  • See the overall performance of your company or just a part of it.
Advantages of analytical accounting

Analytical accounting can be an essential tool for the development and growth of our business. It always provides information about what is really happening in the company, or if there are projects or departments that are generating losses or are not working well.

Among its main advantages we find that it allows us to know precise data on the fundamental aspects of the company, such as direct and indirect costs, profits, impasses, etc.

Since information is always the strength and value of a company, it helps to make the best business decisions at a given moment: pricing policy, whether a project should continue or not, etc.

It also helps to better control the expenses incurred by the company and to see how they are evolving or where savings can be made.

All this helps to increase productivity, efficiency and business development. Obviously, cost accounting requires effort, but it is worth it.

How do you do analytical accounting?

We have already said that every business is a different world, so first we have to see what information and analysis we need, peel the peel like an orange, and put each expense and income in the corresponding "box".

To accomplish this, we have to implement certain analysis codes so that costs and revenues can then be assigned to each code. These codes can be set up by project, work center, line of business, etc. It is a simple task when we have an integrated accounting management solution with this option to perform it.

Analytical vs. financial accounting

At this point, one could argue that the two accounts are the same. Although both seek to extract digital information from companies, their purposes are quite different. First, analytical accounting is not mandatory and is not subject to any particular law, while financial accounting is subject to business rules and general accounting schemes.

While internal information can also be obtained from financial accounting, such as what a particular customer owes us, it is more external and less specific than analysis. Analysis allows us to obtain the profitability of a specific project and isolate it from all projects within the company.

In other words, the "ultimate goal" of financial accounting is to obtain general financial statements, while analytical accounting analyzes results in detail by specific areas.

Moreover, analytical accounting is more future-proof than financial accounting. Let's take an example to understand it better. Suppose we want to know the net profit of each business unit of our company in order to decide whether to continue operating them. The only way is to analyze and calculate the relevant units.


Just as financial accounting is a critical part of our relationships with third parties, analytics is one of the information engines at the service of decision making. So it is a fundamental part of your business management, which Sage 200 can offer you in addition to many different modules, so that you can configure your Sage 200 to suit your business needs.