Organized Bookkeeping

Cost Accounting vs. Financial Reporting

Most Accounting systems are set up for Financial Reporting.  In other words, how much did your Company make last month, last year, or over it’s entire existance.  That is incredibly useful information to have.  It’s used to compute taxes, provide information to banks, and investors always like to see them as well.

However, how do you know if your product mix is correct?  What if your retail sales are subsidizing your wholesale sales?  What if that new yogert machine hasn’t broken even yet?

That’s a whole different animal for most Accounting Systems.  Most small business systems are not set up from the get go to even record the information that you need to find out the answer to that question.

For Example:

A QuickBooks Item called: ‘Sales’  that is used on every invoice for ever sale isn’t very helpful.  However, QuickBooks Items such as “Carrots”, “Beans”, and “Corn” are incredibly helpful if you want to know how much of those items are sold on a weekly, monthly or yearly basis.  Having that basic information will help you track trends, determine what the price per each/pound was and all sorts of useful information.

Point of Sales Systems are often used to facilitate or to increase the ease of finding out that information.  There is a huge amount of varience in the different types of Point of Sales Systems.  Take the time to kick the tires of an industry specific POS Systems and get some feedback from others.

So the first goal of a Cost Accounting System is to segregate the sales into different types of services, products or manufactured goods.  It’s necessary to define what you are going to be measuring before you can throw some numbers around.  Some systems, such as QuickBooks, use the Sales Items to also create Job Costing.

The second Goal… let’s cover that in a different post because this first step can be such an eye opener for most business owners.

Think About It!  What are you selling?