PROBLEMS OF COST FINDING 1. Bookkeeping, accounting and cost finding.—A clear conception should be had of the relation between accounting, bookkeeping and cost finding. Account ing is the science of recording transactions in terms of money, which is the measure of all commercial and productive performances. Where properly conceived it is of much wider scope than bookkeeping, with which it is often considered identical. Bookkeeping is, more strictly speaking, the clerical work of recording trans actions, but accounting goes further and deduces financial statements that may serve as safe guides for the conduct of the business. Almost any one can in troduce a system of bookkeeping that will show the balances and general results of the business, but to lay out an accounting system that will anticipate future performances and guide the manager safely where the details are so great as to be beyond his grasp, is a dif ferent matter.
Cost finding is that part of general accounting which deals with the finding of the detail costs which make up the general or summarized costs. It is, therefore, closely connected with shop processes and shop management, and the cost keeper usually is placed directly under the manufacturing superinten dent. Cost finding can be carried on with little ref erence to the general accounts, and this practice is not uncommon. The general books should always show accurately the totals of all labor and material that have been purchased for any and all purposes, and also all receipts for sales, without regard to the de tails as to how these expenditures and receipts were brought about. It is clear also that the summaries, as shown by the general accounts, can be accurately determined, since these summaries can be based upon purchase orders, payrolls, bills of sale and similar documents. It is clear, also, that these general sum maries will show whether the business is prospering or not and will show also whether the prices asked are, in general, sufficiently high to cover all expendi tures and insure a profit. However, if it is desired
to know something regarding the detailed cost of some particular job or article this information can be ob tained only by opening a special ledger account with it. In small enterprises this is sometimes done, but in undertakings of any magnitude a procedure would lead to undesirable complexity and extent in the general accounts. Cost accounts are therefore usually conducted as an independent investigation, the cost summaries not necessarily being merged into the general accounts.
2. Cost accounts a branch of general accounts.— For best results, however, the cost accounts should be treated as a branch of the general accounts and the cost summaries should be merged into the general ac counts. It will be seen from the folloVving discussion that it is difficult to keep absolutely accurate cost ac counts, and that the cost summaries do not always agree with the corresponding totals of the general ac counts. These facts are sometimes used as arguments against cost-finding systems as a means of setting sales prices but. this argument is not valid. Any cost-find ing system worth considering should give results that can be reconciled with the totals of the general ac count with sufficient accuracy, or the difference should be explainable on some other ground than that of in accuracies in the cost-finding methods... General ac counting is obviously necessary to secure accurate gen eral summaries, and cost accounts are necessary to show the details of each summary where such details are needed. The two systems should, therefore, be related parts of one general scheme of accounting. Evidently the installation of a cost-finding system should be the joint work of the skilled accountant and the manufacturing expert.
General accounting must be conducted in practi cally every business, but cost finding, in a detailed sense, may or may not be necessary, tho, as before stated, it is often badly needed in many places where it is not considered necessary.