Page 46 - Cost Accounting - Ready Reckoner

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CHAPTER – 15

Reconciliation of Cost Accounting Records

with Financial Accounts

Financial accounts and Cost accounts are two different accounting systems.
Profits in financial accounts will differ from profit in cost accounts and thus arises the
need to reconcile financial and costing profits in the event of non-integrated
accounting.
Reasons for difference between financial and costing profits shall be because:

1. Certain items of pure financial nature is not considered in cost accounts.
Eg. a) Writing off of goodwill, patents, etc.
b) Income tax
c) Dividend paid or received
d) Transfer to reserves

2. Overheads are charged at actuals in financial accounts whereas in cost accounts they
are absorbed at predetermined rates and thus resulting in under or over absorption of
overheads.

Procedure for reconciliation

Take Profits as per Financial Accounts.

Add :
(a) Items of income included in Cost Accounts but not in Financial Accounts.

(b) Items of expenditure included in Financial and not in Cost Accounts.