Page 46 - DCOM206_COST_ACCOUNTING_II

Particulars

Profit as per cost accounts
5,65,160
Add: Excess expenses charged in cost accounts Amount – ` Amount – `

 Material 6,00,000
 Factory overheads 1,20,000
 Administrative overheads 44,000
Income not recorded in cost accounts
Unit 2: Reconciliation of Cost and Financial Accounting
 Dividend 1,00,000
 Interest received 20,000
 Total 8,84,000
Notes
Total 14,49,160
Less: Expenses not recorded in cost accounts
 Legal charges 10,000
 Preliminary expenses written off 40,000
 Bad debts 80,000
 Total 1,30,000
Less: Overvaluation of closing stock in cost records 29,160
Total 1,59,160 1,59,160
Profits as per financial accounts 12,90,000

The new Accounting Manager using the new software reconciled Profit and Loss Account
and Reconciliation Statement and found them all wrong!!

Questions:
1. Check Profit and Loss Account and state if it is correct or not. If not, make correct
entries.

2. Check Reconciliation Statement and state if it is correct or not. If not, correct it.

Source: http://www.myicwai.com/StudyMaterial/Cost_Mgmt_Ac.pdf
2.5 Summary

 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.
 It is important to note that the question of reconciliation of cost and financial accounts
arises only under non-integral system.
 However, under the integral accounts, since cost accounts and financial accounts are
integrated into one set of books and only one profit and loss account is prepared, the
problem of reconciliation does not arise.
 The need for reconciliation arises due to the reasons for the difference in the profit or loss
in cost and financial accounts, to ensure the mathematical accuracy and reliability of cost
accounts in order to have cost ascertainment, cost control and to have a check on the
financial accounts.
 The cost and financial accounts are reconciled by preparing a Reconciliation Statement or
a Memorandum Reconciliation Account.
 Reconciliation statement is a popular and important method of cost accounts and financial
accounts.

 Memorandum Reconciliation Account: This account is presented in debit and credit form
but it is not a part of double entry system of book-keeping. So it is kept as a memorandum
account only.

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