January 29, 2022


Accounting + Finance Blog

Five Principles of a good cost accounting information system


To ensure an appropriate report from the cost accountant, the enterprise must set up a good cost accounting information system. This procedure will help the accountant to prepare and present reports that are useful to management. For cost statements to be useful, it must be relevant and timely among others. Below is a list of explanations of a good cost accounting information system.

Principles of cost accounting system

Cost and Benefits: I personally slated this as number one because of the cost of setting up a costing system is higher than the benefit derived from it, then it doesn’t worth it. For example, the cost of setting up the system is up to 40 percent of the firm’s annual revenue, then it is useless.

For small businesses interested in setting up a cost accounting system, such a system should not be more than 5 percent of the revenue for a year.

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Relevant: The information provided by a cost accounting system must be relevant to the management needs. If management needs information regarding the cost of a product and the cost statement provided is for deciding on whether to make or buy a product them such information lacks relevance.

Timely: This is the third most important aspect of a good cost accounting system. The information provided must not be passed or for the future. Also, it should be made available on time. For example, if a manager needs particular information from the system on a particular day them such data should be provided at most on a set day.

Furthermore, there is a relationship between coat information that is relevant and timely. Relevant information must be accurate. However, in making information relevant, it is possible to sacrifice timeliness and vice versa.

Understandable: Cost reports prepared by a cost accountànt should be prepared in such a way that it is clear and understandable to management. The information should be summarized in such a way that a layman can understand it. The preparer should avoid accounting jargon when preparing such statements.

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Accuracy: A good cost accounting information system must be as accurate as possible. Accuracy as to do with ethics. An accountant who in a previous report made n inaccurate statement but latter discovered such errors must re-communicate the same to the manager who requested such information. Failure to do so is an abuse of job ethics.

To conclude, must cost accounting systems in this digital age are computerized. However, such a system must not outweigh the benefits. It is left for the business owners to decide if to use a system whose expenditure is quite high compared to its rewards.

Next, the elements of costs will be discussed.