Business

The objective of accounting is to provide decision-makers with accurate and useful information for making business decisions. Good accounting information leads to better decisions, which lead to improved profitability (or greater services, in the case of not-for-profits). Accountants have realized that the information needs of external decision makers (such as stockholders, creditors, potential investors, government, labor unions, etc.) are different from those internal decision-makers (such as managers of the company). Accordingly, field of accounting has been divided into to two broad categories of Financial Accounting and Managerial Accounting. Financial accounting primarily focuses on the information needs of external decision-makers. On the other hand, Managerial accounting focuses on the information needs of internal decision-makers. The following table summarizes the differences between the two. All expenses necessary to secure customer orders and get the finished product or service into the hands of the customer are listed under Selling Expenses. These expenses are often called order-getting and order-filling expenses. Examples are advertising, shipping, sales travel, sales commission, sales salaries, depreciation of furniture and equipment used by selling departments, supplies and utilities used by selling departments and activities, and expenses of finished goods warehouse.

Administrative Expenses (also called Period Cost or Expense)

All executive, organizational and clerical expenses associated with the general management of an organization rather than with manufacturing, marketing, or selling are listed under this category. Examples are executive compensation, general accounting, secretarial for administration, public relations, and similar expenses involved in the overall, general administration of the organization as a whole.

Cost of Goods Sold (Product Cost)

Cost of Goods Sold (CGS) Expense pertains only to the merchandising and manufacturing companies. In merchandising companies, CGS is the purchase cost of the portion of inventory that is sold.