Integrated Accounting System - Cost Accounting Techniques, Cost Accounting | Cost Accounting - B Com PDF Download

Integrated (Integral) Accounting System
Integrated Accounting is a system in which the accounts are integrated and only a single set of accounts are maintained for Cost & Financial records. It avoids maintenance of Accounts under cost accounting & financial accounting. This enables a firm to eliminate separate Profit & Loss Accounts under financial accounting and cost accounting systems & only one Profit & Loss Accounts are prepared. It provides entire information for the ascertainment of cost of each unit as well as preparation of a balance sheet as per the legal requirement of the organisation. It also provides necessary information as required by the costing and finance department. There is no General Ledger Control A/c is prepared in this system.

Benefits of Integrated Accounting System
The benefits of Integrated Accounting System are as follows:

1. No need for reconciliation as it maintains single set of accounting records.
2. Easy method to maintain accounts and avoid unnecessary complications.
3. There is no possibility of different profit figures being reported in integrated accounting system.
4. There is economy of scale due to the savings in the maintenance of books and general accounting
5. There is saving of time, because two different sets of books need not be maintained

Pre-Requisites for an Integral Accounting System 
The following principles shall be taken into consideration while designing such a system:

1. The degree of integration must be determined. Some undertakings find it satisfactory merely to integrate upto the stage of prime cost or factory cost while other concerns integrate the whole of the records in which cost and financial accounts cannot be distinguished.
2. The degree of integration will determine the classification of expenditure. The expenditure classified here according to function as office expenses, selling expenses etc., and not according to nature. However, control accounts are maintained for each element of cost. A suitable coding system should be available to serve the accounting purposes of financial and cost accounts.
3. Full details of items posted to the control accounts are supplied to the cost office at convenient intervals. This information is then dealt with by the cost office in accordance with the system of costing in force.
4. The amount of detail recorded in the ledger is usually kept to a minimum. Full information regard in each department or process being contained in tabulators prepared by the cost office. These tabulations are sometimes referred to as third entries to emphasize that they are not part of double entry system.
5. For preparation of interim accounts there must be an agreed routine for treatment after accruals, prepaid expenses and other necessary adjustments.
6. There should be perfect coordination between the staff responsible for the financial and cost aspects to ensure an efficient processing of accounting documents.

Essential Features of Integral Accounting 
The following are the essential features of an integral an accounting system:

1. It records financial transitions not normally required for cost accounting be sided recording internal costing transaction prepayments and accruals are opened.
2. Stores transactions are recorded in the stores control account. This account is debited with the cost of stores purchased corresponding credit being given to cash or sundry creditors depending whether the purchase is made for cash or on credit.
3. Wages control account is debited with the wages paid, contra credit is taken in cash or bank account.
4. Overhead expenses are debited to the overhead control account, corresponding credit being given to cash or band account or the sundry creditors.
5. Transactions relating to material, labour cost overheads are posted in the stores wages and overhead control account after making suitable cost analysis and tat the end of the period transfer of the totals is made to the wok in progress accounts by crediting various control accounts. The day to day cost analysis made for this purpose is known as making third etc. These entries do not mean entries in the same sense a entry of transaction in the ledger but such entries are simply a sort of cash analysis.
6. All advance payments are credited and accruals debited to the respective control account by contra entries in the prepayments and accrual accounts.
7. Capital asset account is debited and respective control accounts are credited in the process of cost analysis of capital expenditure.

It is also important to note that integrated accounts are like a hybrid between non-integrated and the financial system of accounting as in case of the non-integrated system, No personal or real accounts are prepared and all entries are passed through the general ledger adjustment account. In the financial accounting system, there is no base of the cost accounting. In the integrated system of accounting, personal and real accounts are prepared but there exists a base of the cost accounting system
For Example, The same entry when passed through the three systems of accounting look like:

While passing entries in any system of accounting, follow the steps:

1. Visualise the accounting entry in the financial system of accounting;
2. Then replace the cost head, by the head in the costing system of accounting;
3. In case of the non-integrated system, and additional step is replacing any personal or real A/c by the General Ledger Adjustment A/c

Illustration 1
Pass Journal Entries in the Cost Books [non-integrated systems] for the following transactions.
(a) Materials worth `50,000 returned to stores from job
(b) Gross total wages paid `96,000.
(c) Employer’s contribution to PF and State Insurance amount to `4000.
(d) Wages analysis book detailed `40,000 direct labour,
(e) Rs 24,000 towards indirect factory labour
(f) Rs 20, 000 towards salaries to office staff and `16,000 for salaries to selling and distribution staff.
Solution:

COST JOURNAL

Scheme of Making Entries:
Since the cost and financial books are not separate, there will be no need for a Cost Ledger Control Account. Entries will be made in the usual way. If the concern is big, a system of self-balancing ledgers should be adopted. In other words, there should be a number of subsidiary ledgers to record information of a particular type. There will then be control accounts in the main ledger.

The following are the various subsidiary ledgers and control accounts that may be required:

Some of the entries to be made in control accounts, if costing and financial books are separate.

Third Entry Method:
Third entry is a variant of integrated accounts. In this case, in the financial books as ordinarily maintained, an account called Cost Ledger Control Account is debited whenever any expenditure relating to costs is incurred. This debit is in addition to the ordinary and usual accounts to be debited. In respect of Cost Ledger Control Account there will be no double entry.

For instance, when wages are paid, the entry will be:

Complete analysis is made in a separate ledger, which is called Cost Ledger, of all debits placed to the Cost Ledger Control Account and accounts are constructed in the ledger to show cost of production of various jobs, products, etc., but without double entry. In the financial ledger, the Cost Ledger Control Account is closed by being credited when the various expenses accounts are transferred to the Profit and Loss Account at the end of the year.

Journal Entries for Integrated Accounts:
In the following Table entries under Cost Control System and Integral System both have been given for comparative study:

Question and solutions of Integrated Accounting System

Illustration I: Journalise the followings transactions assuming that cost and financial accounts arc integrated:

Solution: 

Illustration 2: Messers Essbee Ltd.. maintain integrated accounts of cost and financial accounts. From the following details write up control accounts in the general ledger of the factory and prepare a trial balance. 

Solution:

Illustration 3: BPR Limited keeps books on integrated accounting system. The following balance appear in the books as on April I. 2002 

Solution:
 

Illustration 4: In the absence of the Chief Accountant. you have been asked to prepare a month's cost accounts for a company which operates a batch costing system fully integrated with the financial accounts. The following relevant information is provided to you 

Solution:

Illustration 5: Dutta Enterprises operates an integral system of accounting. You are required to pass the Journal Entries for the following transactions that took place for the year ended 30-6-2004. (Narrations are not required) 

Solution:

Illustration 6: The following incomplete accounts are furnished to you for the month ended 31st October 2004. 

Solution: Working notes:

Integrated Accounting System Problem 1:
The following figures have been extracted from the costing records and financial books of a factory. You are required to pass the necessary entries in the cost journal:

Solution:

Integrated Accounting System Problem 2:
A manufacturing company has approximately 600 weekly paid direct and indirect production workers. It incurred the following costs and deductions relating to the payroll for the week ended May 2:

The employer’s national insurance contribution for the week was Rs.18,770.
From the wages analysis the following information was extracted:

Work done by building maintenance workers concerning floor area for a warehouse extension.
You are required to show journal entries to indicate clearly how each item should be posted into the accounts
(i) From the payroll, and
(ii) From the Wages Control Account to other accounts, based on the wages analysis.
Note:
Narrations for the journal entries are not required.
Solution:

Integrated Accounting System Problem 3:
Dutta Enterprises operates an integral system of accounting. You are required to pass the Journal Entries for the following transactions that took place for the year ended 30. 6. 1990:

Solution:

Integrated Accounting System Problem 4:
In the absence of the Chief Accountant, you have been asked to prepare a month’s cost accounts for a company which operates a batch costing system fully integrated with the financial accounts. The following relevant information is provided to you:


The production overhead absorption rate is 150% of direct wages charged to work-in- progress.
Required:
Prepare the following accounts for the month:
(a) Stores Ledger Control Account.
(b) Work in Progress Control Account.
(c) Finished Goods Control Account.
(d) Production Overhead Control Account.
(e) Profit and Loss Account.
Solution:

Notes:
1. Materials transferred between batches will not affect the Control Accounts.
2. Non-production time of direct workers is a production overhead and therefore will not be charged to work in progress control A/c
3. Production overheads absorbed in work in progress Control A/c will be equal to Rs.30,000 (150% of Rs.20,000)
4. In the work in progress control A/c the excess physical value of stock is taken resulting in stock gain. Stock gain is transferred to Profit & Loss A/c.

Integrated Accounting System Problem 5:
Messrs. Essbee Ltd. maintain Integrated Account of Cost and Financial Accounts. From the following details write control accounts in the general ledger of the factory and prepare a trial balance:

Solution: