Page 47 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes 2.6 Keywords

Cost Accounting: Its purpose and objective is internal reporting to management.
Cost Ledger: It is the principle ledger of cost department in which impersonal accounts are
recorded.
Financial Accounting: The purpose and objective of financial accounting is external reporting
mainly to owners, creditors, tax authorities, government and investors.

Integral Accounts: Under this type of accounting 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.
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.
Non-integral System of Accounting: It is the system of accounting in which separate ledgers are
maintained in cost and financial accounts by accountants.
Reconciliation: Reconciliation is a process whereby profits revealed by two sets of books are
tallied after ascertaining the reasons for disagreement of the two profits.

Reconciliation Statement: Reconciliation statement is a popular and important method of cost
accounts and financial accounts.

2.7 Review Questions

1. Explain ‘reasons for difference’ between cash profit and financial profit.

2. Discuss the causes of difference between costing profits and financial profits.
3. What value do you attach to the reconciliation of cost accounts and financial accounts?
Explain the main reasons for the difference in the net profits shown by the two sets of
accounts.
4. Explain the reconciliation procedure. Under what circumstances, a reconciliation statement
can be avoided?
5. What is the purpose of reconciliation cost and financial accounts? Indicate the possible
sources of difference between them.
6. Explain the procedure of reconciling the profit as shown by cost and financial accounts.
7. Explain the difference between reconciliation statement and memorandum reconciliation
account. Prepare an imaginary memorandum reconciliation account.
8. Distinguish between reconciliation statement and reconciliation account.
9. What is a profit and loss reconciliation statement? How is it prepared? Taking imaginary
figures, you are required to prepare a statement.
10. State the steps involved in the preparation of reconciliation statement.
11. Calculate the amount of profit as per profit and loss account on the basis of the following
information:
Profit as per cost account ` 16,000.
Factory overheads were under-recorded in cost account by ` 320.

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