REA-based cost & financial accounting model: Integrated resource-based cost and financial accounting

Abstract

Cost accounting is not cost accounting. There are different conceptualizations of cost accounting. E.g., in traditional cost accounting direct cost are traced directly and indirect (overhead) costs are allocated indirectly via cost pools to the cost objects. In Activity-Based Cost (ABC) accounting the indirect costs are related to activities and from there they are allocated to the cost objects. Flexible standard-cost accounting traces direct costs and allocates indirect costs via input standards for the resources applied in the activities to the finished products. The same holds true for the financial accounting domain as there also exist different conceptualizations. The traditional financial accounting is purely based upon monetary terms. In the Resource Event Agent (REA)-based accounting transactional information related to the exchange and conversion of resources is collected. The REA-based financial accounting is grounded in the Asset Liability Equity (ALE) accounting equation to fulfill the legal financial accounting requirements. Still missing is an accounting model that aligns resource-based cost and financial accounting in a single comprehensive domain model. In this article this integration problem will be solved by establishing the ‘REA-based cost & financial accounting model’ that seamlessly incorporates the resource-based accounting approaches for the cost and financial accounting domains.