Historical
Development of Cost Accounting
Another
result
of the Industrial Revolution which influenced the income-oriented
viewpoint
was the refinement of cost accounting techniques. A refinement
was
necessary in order to afford a better accounting for the production
costs
associated with the large manufacturing entities. The development of
perpetual
inventories, refinements in tracing the movements and conversions of
cost
with the enterprise, and improvements in overhead cost allocations
contributed
to a more refined determination of periodic net income. As stated
by Gilman, "all of these cost accounting developments represented
forces
tending to shift emphasis from the balance sheet to the profit and loss
viewpoint."
Cost accounting can be
traced
to around the 14th century, although the widespread use of cost
accounting
was late in developing because:
-
machinery was uncommon
and overhead
costs were small or nonexistent as related to total cost prior to the
Industrial
Revolution.
-
secrecy of methods--it
was felt
that discussing methods would benefit competitors
-
manufacturing processes
were simple--management
did not need records of costs
Most rapid development of
cost
accounting occurred in the 1890-1915 period. The basic structure
of cost accounting was formulated and the mechanics for integrating the
cost records with the general accounts were devised.
Scientific management
movement--early
twentieth century--influenced cost accounting development, particularly
the area of standard costs.
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