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Reconciliation Of Cost And Financial Accounts Homework Help

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Reconciliation Of Cost And Financial Accounts

Where accounts are maintained on the integral accounts system, there are no separate cost accounts and financial accounts. Hence, the question of reconciliation of cost and financial accounts does not arise. However, where separate sets of books are maintained for cost accounting and financial accounting system, it is imperative that periodically the two accounts are reconciled. A memorandum of reconciliation is prepared, indicating the reasons for difference between the results disclosed by each system. The difference between the two sets of accounts arises because of the following reasons:

(a) Items included only in financial accounts

There are number of items which appear only in financial accounts, and not in cost accounts, since they neither do nor relate to the manufacturing activities, such as,

  • Purely financial charges, reducing financial profit
    • Losses on capital assets
    • Stamp duty and expenses on issue and transfer of stock, shares and bonds
    • Loss on investments.
    • Discount on debentures, bonds, etc.
    • Fines and penalties,
    • Interest on bank loans.
  • Purely financial income, increasing financial profit
    • Rent received
    • Profit on sale of assets
    • Share transfer fee
    • Share premium
    • Interest on investment, bank deposits.
    • Dividends received.
  • Appropriation of profit – donations and charities.

(b) Items included only in the cost accounts

There are very few items which appear in cost accounts, but not in financial accounts. Because, all expenditure incurred, whether for cash or credit, passes though the financial accounts, and only relevant expenses are incorporated in cost accounts. Hence, only item which can appear in cost accounts but not in financial accounts is a notional charge, such as, (i) interest on capital, which is not paid but included in cost accounts to show the notional cost of employing capital, or (ii) rent i.e. charging a notional rent of premises owned by the proprietor.

(c) Items accounted for differently in cost accounting and financial accounting

  • Overhead – In cost accounts, overheads are applied to cost units at predetermined rates based on estimates, and the amount recovered may differ from actual expenses incurred. If such under-or over-recovery of overheads are not charged off to costing profit and loss account, the profits on two sets of books will differ.
  • Stock valuation – In financial accounts, stock is valued at lower of cost or market value. In cost accounts, stock is valued at cost adoption one of the methods, such as FIFO, LIFO, average etc., which is suitable to the unit. Thus, there may be difference in stock valuation, which will reflect difference in profit between the two sets of books.
  • Depreciation – If different basis is adopted for charging depreciation in cost accounts as compared to financial accounts, the profits will vary. is a pioneer in online tutoring and homework help. Our tutors are highly qualified in their subject areas and have been helping students since 2003. For immediate Reconciliation Of Cost And Financial Accounts homework help, use the homework-help form present on this page. You can also get help with your Reconciliation Of Cost And Financial Accounts homework by writing to

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