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INTRODUCTION TO COST ACCOUNTING
To manage a diverse, international banking organization, ABN AMRO’s leaders
need monetary and nonmonetary information that helps them to analyze and solve
problems by reducing uncertainty. Accounting, often referred to as the language
of business, provides much of that necessary information. Accounting language has
two primary “variations”: financial accounting and management accounting. Cost
accounting is a bridge between financial and management accounting.
Accounting information addresses three different functions: (1) providing information
to external parties (stockholders, creditors, and various regulatory bodies)
for investment and credit decisions; (2) estimating the cost of products produced
and services provided by the organization; and (3) providing information useful to
internal managers who are responsible for planning, controlling, decision making,

and evaluating performance. Financial accounting is designed to meet external information
needs and to comply with generally accepted accounting principles. Management
accounting attempts to satisfy internal information needs and to provide
product costing information for external financial statements. The primary differences
between these two accounting disciplines are given in Exhibit 1–1.
Financial accounting must comply with the generally accepted accounting principles
(currently established by the Financial Accounting Standards Board [FASB],
a private-sector body). The information used in financial accounting is typically
historical, quantifiable, monetary, and verifiable. These characteristics are essential
to the uniformity and consistency needed for external financial statements. Financial
accounting information is usually quite aggregated and related to the organization
as a whole. In some cases, a regulatory agency such as the Securities and
Exchange Commission (SEC) or an industry commission (such as banking or insurance)
may mandate financial accounting practices. In other cases, financial accounting
information is required for obtaining loans, preparing tax returns, and understanding
how well or poorly the business is performing.
By comparison, management accounting provides information for internal users.
Because managers are often concerned with individual parts or segments of the
business rather than the whole organization, management accounting information
commonly addresses such individualized concerns rather than the “big picture” of
financial accounting. Management accounting is not required to adhere to generally
accepted accounting principles in providing information for managers’ internal
purposes. It is, however, expected to be flexible in serving management’s needs
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