Cost accounting is concerned with recording and reporting business operating costs. It includes the reporting of manufacturing costs and inventory costs, that is, the value of items.
Central principles to understand are that costing methods define how items are valued when they leave inventory, that cost adjustment updates the cost of goods sold with related purchase costs posted after the sale, and that inventory values must be posted to dedicated G/L accounts at regular intervals.
The following table describes a sequence of tasks, with links to the topics that describe them. These tasks are listed in the order in which they are generally performed.
| To | See |
|---|---|
Distinguish the five different costing methods and their effect on cost flows. | |
Learn how item application entries dynamically link inventory decreases with increases to keep control of cost flows. | |
Distinguish item ledger entries (physical) from the related value entries (financial). | |
Learn how an item's unit cost is continuously updated with the cost of its latest transaction according to the item's costing method. | |
Read why standard costs are often used by manufacturing companies as a valuation base for components and end items. | |
Learn how an item's average cost is dynamically calculated according to the selected average cost period. | |
Distinguish expected cost (not yet invoiced) from actual cost and learn how it is managed in the general ledger. | |
Understand the cost adjustment mechanism, which ensures that costs are brought forward even if inventory transactions happen in a random manner. | |
Understand how the value of inventory is reflected in the general ledger. | |
Learn how item charges, such as freight and insurance, can assign additional cost components to an item's unit cost. | |
Read how inventory periods help a company to control inventory value over time by defining shorter periods that can be closed for posting as the fiscal year progresses. | |
Read how item and resource costs are processed and distributed to the general ledger when you post assembly orders. |