The correct answer is: A. Limitations
Cost accounting is a branch of accounting that focuses on the measurement, analysis, and reporting of costs. It is used to help businesses make decisions about pricing, production, and other areas.
Financial accounting, on the other hand, is a branch of accounting that focuses on the preparation of financial statements for external users, such as investors and creditors. Financial statements provide information about a company’s assets, liabilities, equity, revenue, and expenses.
Cost accounting and financial accounting are both important for businesses, but they serve different purposes. Cost accounting is used to help businesses make decisions about their operations, while financial accounting is used to provide information to external users.
The limitations of financial accounting include the following:
- Financial accounting focuses on historical costs, which may not be relevant for decision-making.
- Financial accounting does not provide information about the costs of individual products or services.
- Financial accounting does not provide information about the costs of activities or processes.
Cost accounting addresses these limitations by focusing on the measurement and analysis of costs that are relevant for decision-making. Cost accounting also provides information about the costs of individual products or services, activities, and processes.
Therefore, cost accounting has been developed because of the limitations of financial accounting.