Brief History of Cost Accounting

History of Cost Accounting

Every business has to face stiff competition under uncertainty conditions or situations. Moreover, risks involved in running of a business unit are also increased due to quick changes made in social, political and economic environment. These changes create both favorable and unfavorable impact on the business. Therefore, each business unit should adjust or change its policies on the basis of the situation requirements. In this way, a modern business becomes more and more complex in nature.

In olden days, the size of the business unit is very small and no keen competition. Hence, there is no need of adjustment in business policies due to changes made in social, economical and political environment. Besides, the businessman has close contact with all the employees, suppliers and customers. Hence, he knows everything.

But, nowadays, the business is big in size and complex in character and is functioning under cutthroat competition, Hence, the businessman requires all kind of information in detail to prepare appropriate business policy. Only on the basis of detailed information, a businessman can take quality decision and get success.

The traditional financial accounting fails to furnish all kinds of information that are necessary for effective functioning of business. Thus, a new accounting system is emerged and developed i.e. Cost Accounting as a branch of Financial Accounting. This branch of accounting has been rapidly expanding with its developing techniques and procedures in the field of its application.

Only financial results and financial position of a business for a given period of time and on the last date of such given period respectively are provided by the Financial Accounting System.

A businessman cannot able to control and regulate the business effectively with the help of such information. Hence, the Cost Accounting takes the responsibility of generating the information that are highly useful for controlling the operations with a view to increasing efficiency and reducing the expenses and hence increase profit.

Cost Accounting principles were found in application as early as 14th century. At the same time, the current cost accounting procedure was established at the end of 19th century. However, the cost accounting principles got importance and developed just before the end of the Second World War.

Scientific Management provides a basis for the development of standard costing.