The word Financial Accounting is concerned with recording, classifying and summarising the financial transactions and preparing statements relating to the business in accordance with generally accepted accounting concepts and conventions. Since the very beginning Financial Accounting had some Deficiencies/Drawbacks due to which it was not able to fulfill all the needs of the administration of a business, and therefore, ‘Cost Accounting’ came into existence.
So the important deficiencies of Financial Accounting for making up of which Cost Accounting came into existence, are as follows:-
1. Classification of data according to departments or processes.
2. Control over Material.
3. Control over Labour.
4. Control over Direct and Indirect Expenses.
5. Lack of Criteria for Assessment of Efficiency.
6. Lack of Budgetary Control.
7. Difficulty in fixing selling price.
8. Assessment of Loss if plant remains idle.
9. No indication of Comparative Efficiency of various alternatives.
10. No adequate information for outside agencies.
It is clear from the above points that there were many deficiencies in Financial Accounting. To make up these deficiencies there was evolution and development of Cost Accounting.