Do you wear glasses? Sunglasses? Either way, you know there's a world of difference between "before" and "after" cleaning your lenses. Cost accounting is a bit like a cloth you run over the lenses of your accounting.
Once that's done, you see everything more clearly. And with the added clarity that cost accounting brings, you also gain a better understanding of your company's costs and profitability drivers.
To help you see cost accounting more clearly, here is our summary of its fundamentals. We have put together a complete overview for you, including:
Financial accounting and cost accounting are two distinct disciplines.
Financial accounting is a legal requirement. It provides an overall view of the company's financial position, by period or by year. It takes the form of the balance sheet and the income statement, among others.
Financial accounting is also intended for use outside the company. Cost accounting, because of its value for steering the business, is used purely internally.
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Cost accounting consists of classifying, reporting and analyzing expenses and income according to your company's needs. It is nonetheless based on financial accounting.
As mentioned above, cost accounting is optional. However, the fine-grained control and insight it provides make it essential for any company that wants to improve its management. It offers a very deep level of analytical granularity. That's why it is a powerful strategic and managerial lever, especially when combined with reporting.
Its analytical axes make it an excellent basis for analytical reporting. This type of reporting is inseparable from a detailed understanding of your business. It brings additional insight, particularly into profitability by product, service or entity. Read our article on analytical reporting for a detailed look at its benefits.
As experts in corporate performance management, here are what we see as the 3 most notable benefits of cost accounting.
In short, cost accounting lets you truly understand your company's relative performance.
Analytical axes are inherent to cost accounting. They support strategic decisions by adding a level of detail to accounting data.
Analytical axes can be of different kinds. At the level of a company or a group, an analytical axis can be used to categorize, for example:For each of these axes, analytical codes must be created. They link the possible values to the analytical axis concerned. For example, if a company has several stores, the store analytical axis will be split into Brussels, Lyon and Ghent: the company's 3 stores.
Analytical axes are very important. They are what you build effective management reporting around, because of their role in tracking your company's activity and profitability.
Does cost accounting sound like the right option for you? We have prepared the steps to follow to adopt this method successfully.
Our customers sometimes tell us they got stuck in their cost accounting efforts. The reason? Not enough analytical axes available in their accounting and/or reporting solutions. To avoid this trap, make sure you choose your solution based on the analytical axes you will need.
Designed by a CFO for CFOs, EMASPHERE handles up to 10 analytical axes. Thanks to its connections with many accounting software packages, the solution pulls information directly from your accounting tools.
Once your analytical axes are defined, it's time to bring them together in a "bible".
By "bible", we mean a structured document that contains:Once formalized, this document should be shared with the employees and/or teams responsible for entering invoices. Each type of income or expense must be clearly linked to a dedicated analytical axis. The goal is simple: leave no room for ambiguity when coding entries.
Once you have completed these three steps, make the most of cost accounting. To do so, adopt analytical reporting.
Analytical reporting comes after:Based on the data obtained via the connection to your accounting software, EMASPHERE turns the data into management indicators.
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Combined with the drill-down feature, EMASPHERE analytical reporting lets you decode your accounting entries. In a single click, you can access the details behind your figures from any accounting entry. This also applies to figures from your analytical axes.
To support your analytical reporting, EMASPHERE also lets you choose from 50+ preconfigured, customizable indicators. They require no technical expertise and let you tailor your reporting to your company's needs.
Without ignoring the specifics of each company, business model or industry, here are the combinations of analytical axes we frequently see among our customers.
To guide you as well as possible, we have grouped them by industry. Keep in mind, though, that these analytical axes are not a prescription. They are based on our experience.
Well done: you now have a clear picture of cost accounting. To get the most out of it, the next step is obvious: read our article on the synergies between cost accounting and reporting. There you will find a detailed look at the benefits of analytical reporting.