David Krause1.1 What financial accounting does not do
Financial accounting fulfils legal obligations. It documents transactions under commercial and tax law, values conservatively and looks backward. For its purpose it is exactly right — for costing it is unsuitable.
| Attribute | Financial accounting | Cost accounting |
|---|---|---|
| Audience | tax office, banks, shareholders | management, costing, sales |
| Rulebook | commercial & tax law — binding | freely designed, company-specific |
| Time focus | backward-looking | decision-oriented, also forward-looking |
| Valuation | acquisition cost, prudence principle | replacement value, causation principle |
| Period | financial year | month, order, cost center |
| Result | profit or loss | cost per product, hour rate, contribution margin |
Accounting asks: what happened? Cost accounting asks: what does it cost — and what should it cost? Both questions are legitimate, but only the second helps with the quote. Anyone using the first answer for the second question calculates systematically off the mark.
1.2 Financial accounting vs. cost accounting in detail
This is not about playing one against the other — both serve their purpose. But only cost accounting delivers the information that costing and steering need.
| Attribute | Financial accounting | Cost accounting |
|---|---|---|
| Purpose | external reporting, taxes, balance sheet | internal steering, costing, decisions |
| Audience | tax office, bank, shareholders | plant management, controller, cost estimator |
| Time focus | past (period close) | present and planning |
| Cost object | whole company | single part, order, cost center |
| Legal basis | commercial code, tax code — mandatory | freely designed — company-specific |
| Valuation | acquisition cost, tax depreciation | replacement value, imputed costs |
1.3 What cost accounting actually delivers
Three jobs no other instrument takes on:
- Setting price floors — how far an order still carries, short- and long-term
- Comparing products — which part earns, which drains
- Grounding decisions — make or buy, accept or decline an additional order, which machine to invest in
1.4 Why home-grown systems are often wrong
Almost every company has some form of costing. Usually it has grown over years: a spreadsheet, a surcharge rate from the predecessor's era, an hour rate that was calculated once and never checked again.
The frozen rate: an hour rate was determined correctly years ago and carried forward ever since. Wages, energy prices and machine values have changed — the rate has not.
The backward rate: you take annual revenue, divide it by the hours and call the result an hour rate. That carries the past forward, including every error contained in it.
The competitor rate: you orient on the market price and calculate backward whether it's enough. As long as costs are unknown, you never know whether the market price is adequate — you only find out at year-end.
All three patterns have in common that they deliver plausible figures. That is exactly the problem: an obviously wrong value would stand out. A value systematically distorted by 15 percent does not stand out — it just governs every price.
Chapter 2 shows the structure: cost-type, cost-center and cost-object accounting — three stages that build on one another. Skip one and you lose traceability.
