PPT - Reconciliation of Cost & Financial Account | Cost Accounting - B Com PDF Download

 Page 1


Reconciliation of 
Cost and Financial 
Accounts
Page 2


Reconciliation of 
Cost and Financial 
Accounts
Reconciliation of 
Cost Accounts and Financial Accounts
• When cost accounts and financial accounts are
maintained separately in two different sets of accounting
books (Non-integral System), the profit or loss shown by
the both may not agree.
• Therefore, it becomes necessary that periodically the
profit or loss shown by the two sets of accounts is
reconciled.
• A Reconciliation Statement or a Memorandum
Reconciliation Account is prepared showing the reasons
for difference between the results disclosed by cost and
financial books.
Page 3


Reconciliation of 
Cost and Financial 
Accounts
Reconciliation of 
Cost Accounts and Financial Accounts
• When cost accounts and financial accounts are
maintained separately in two different sets of accounting
books (Non-integral System), the profit or loss shown by
the both may not agree.
• Therefore, it becomes necessary that periodically the
profit or loss shown by the two sets of accounts is
reconciled.
• A Reconciliation Statement or a Memorandum
Reconciliation Account is prepared showing the reasons
for difference between the results disclosed by cost and
financial books.
Need of Reconciliation of 
Cost Accounts and Financial Accounts
• To reveal the reasons for difference in profit or loss
between cost and financial accounts.
• To check the arithmetical accuracy of both sets of
accounts as well as to detect errors and omissions
committed in the accounts.
• To ensures the reliability of cost accounts in order to
correct ascertainment of cost of production.
Page 4


Reconciliation of 
Cost and Financial 
Accounts
Reconciliation of 
Cost Accounts and Financial Accounts
• When cost accounts and financial accounts are
maintained separately in two different sets of accounting
books (Non-integral System), the profit or loss shown by
the both may not agree.
• Therefore, it becomes necessary that periodically the
profit or loss shown by the two sets of accounts is
reconciled.
• A Reconciliation Statement or a Memorandum
Reconciliation Account is prepared showing the reasons
for difference between the results disclosed by cost and
financial books.
Need of Reconciliation of 
Cost Accounts and Financial Accounts
• To reveal the reasons for difference in profit or loss
between cost and financial accounts.
• To check the arithmetical accuracy of both sets of
accounts as well as to detect errors and omissions
committed in the accounts.
• To ensures the reliability of cost accounts in order to
correct ascertainment of cost of production.
Reasons for Difference in Profits/losses Shown by
Cost Accounts and Financial Accounts
• Items shown only in Financial accounts.
• Items shown only in Cost accounts.
• Absorption of overheads in cost accounts : under-
absorption and over-absorption.
• Difference in valuation of inventories: (a) Raw materials,
(b) Semi-finished goods or work-in-progress and (c)
finished goods.
Page 5


Reconciliation of 
Cost and Financial 
Accounts
Reconciliation of 
Cost Accounts and Financial Accounts
• When cost accounts and financial accounts are
maintained separately in two different sets of accounting
books (Non-integral System), the profit or loss shown by
the both may not agree.
• Therefore, it becomes necessary that periodically the
profit or loss shown by the two sets of accounts is
reconciled.
• A Reconciliation Statement or a Memorandum
Reconciliation Account is prepared showing the reasons
for difference between the results disclosed by cost and
financial books.
Need of Reconciliation of 
Cost Accounts and Financial Accounts
• To reveal the reasons for difference in profit or loss
between cost and financial accounts.
• To check the arithmetical accuracy of both sets of
accounts as well as to detect errors and omissions
committed in the accounts.
• To ensures the reliability of cost accounts in order to
correct ascertainment of cost of production.
Reasons for Difference in Profits/losses Shown by
Cost Accounts and Financial Accounts
• Items shown only in Financial accounts.
• Items shown only in Cost accounts.
• Absorption of overheads in cost accounts : under-
absorption and over-absorption.
• Difference in valuation of inventories: (a) Raw materials,
(b) Semi-finished goods or work-in-progress and (c)
finished goods.
Reasons for Difference………
Items (Incomes) shown in Financial Accounts only
• Profit on sale of assets/investments
• Interest received
• Dividend received
• Discount received
• Commission received
• Rent received
• Brokerage or Transfer fees, etc. received.