Introduction - Cost accounting vs. general ledger accounting
Cost accounting can help you understand the costs of running a business. In Dynamics 365 Business Central, cost accounting is managed alongside general ledger accounting.
To better understand why companies would invest time and effort in setting up and managing cost accounting on top of general ledger accounting, consider the main differences between the two systems.
| General Ledger Accounting | Cost Accounting |
|---|---|
| Legally required | Optional |
| Retrospective | Prospective |
| External | Internal |
| To inform | To analyze and to decide |
Because general ledger accounting is legally required, companies must follow prescribed rules and laws to fulfill these legal requirements. For example, all recorded postings must be based on actual documents.
Alternatively, cost accounting is optional; therefore, it's more flexible to set up and process. For example, in Business Central, you can transfer budgets to actuals and then, afterward, delete posted cost entries again.
Another difference is that general ledger accounting is retrospective. A balance sheet and profit and loss statement show how a company performed in the past (last year, two years ago, and so on). Thus, general ledger accounting is used to inform external parties such as the government, auditors, and shareholders.
Conversely, cost accounting is prospective. By analyzing costs, managers try to make decisions that have an impact on a company's future. Therefore, cost accounting is a tool that is typically used internally.