Page 30 - DCOM206_COST_ACCOUNTING_II

Manpreet Kaur, Lovely Professional University
Unit 2: Reconciliation of Cost and Financial Accounting

Unit 2: Reconciliation of Cost and Notes
Financial Accounting

CONTENTS

Objectives
Introduction
2.1 Need for Reconciliation

2.2 Reasons for Differences in Profit
2.3 Advantages of Reconciliation
2.4 Method or Procedure of Reconciliation
2.5 Summary
2.6 Keywords

2.7 Review Questions
2.8 Further Readings

Objectives

After studying this unit, you will be able to:
 Discuss the need for reconciliation;

 Understand the advantages of reconciliation;
 Explain the method or procedure of reconciliation;
 Analyse reconciliation between two profits.

Introduction

When cost accounts and financial accounts are separately maintained in two different sets of
books, two profit and loss accounts will be prepared—one for costing books and second for
financial books. The profit or losses shown by the cost accounts may not agree with the profit or
loss shown by financial accounts or books. Therefore, it becomes necessary that profit or loss
shown by the two sets of accounts is reconciled.

According to Wheldon, “No system is complete unless it is linked up with the financial accounting,
that results shown by both cost and financial accounting may be reconciled.” In the words of Eric
L. Kohler, “Reconciliation is the determination of the items necessary to bring the balances of
two or more related accounts or statements, into agreement.”
In this unit, we will study in detail about reconciliation and its implications in financial and cost
accounting.

2.1 Need for Reconciliation

The need for reconciliation arises due to the following reasons:
(i) To find out the reasons for the difference in the profit or loss in cost and financial accounts,

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