Reconciliation of Cost & Financial Accounts

Made By:Dhrumil ShahSYBBA Div 2Roll No- 101Reconciliation of Cost & Financial AccountsCost Accounting

ReconciliationThe cost & financial accounts are maintained separately by firms, so when the profits of both the accounts do not match, there is a need to reconcile them.Reconciliation basically means balancing the profits of different accounts.This will help the firm to check the arithmetical accuracy of the data and will show the reason of difference between the accounts.

2Cost Accounting

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Reasons for differenceCost Accounting3Items recorded in Financial Accounts but not recorded in Cost Accounts.Items recorded in Cost Accounts but not recorded in Financial Accounts. Under or Over Absorption of Overheads. Under or Over Valuation of Opening or Closing Stocks. Treatment of Depreciation.

Format of Reconciliation StatementCost Accounting4ParticularsAmount(Rs.)Profit as per Cost AccountsXXXXADD: Incomes considered in Financial Accounts but not in Cost AccountsNotional expenses considered in Cost Accounts but not in Financial AccountsOver - absorption of overheads in Cost AccountsOver valuation of opening stock of Raw Material, WIP and Finished Goods in Cost AccountsUnder valuation of closing stock of Raw Material, WIP and Finished Goods in Cost AccountsExcess depreciation charged in Cost AccountsXXXX TotalXXXX

Format continuedCost Accounting5

Less:Expenses/ losses and appropriations considered in Financial Accounts but not in Cost AccountsUnder- absorption of overheads in Cost AccountsUnder valuation of opening stock of Raw Material, WIP and Finished Goods in Cost AccountsOver valuation of closing stock of Raw Material, WIP and Finished Goods in Cost AccountsLower depreciation charged in Cost AccountsXXXXProfit as per Financial AccountsXXXX

Practical ExampleCost Accounting6Profit of JK Ltd. as per cost accounts is Rs. 3,50,000. The following details are ascertained on comparison of the cost and financial accounts.ParticularsCost AccountsFinancial AccountsOpening Stock of Raw Material22,50025,000Opening Stock of Work In Progress27,00029,000Loss on sale of Machine-4,000Interest on bank loan-8,000Provision for Bad debts-2,000Goodwill written off-13,000Production overheads1,26,0001,21,200Notional Rent of factory6,000-Profit on sale of fixed asset-8,000Dividend received on investment-1,500Closing Stock of Raw Materials16,00017,000Closing Stock of Work-in-progress12,00012,500Closing Stock of Finished Goods10,0008,000

Prepare a Reconciliation Statement and find out profit as per Financial Accounts.

SolutionCost Accounting7

Reconciliation Statement of JK Ltd.ParticularsAmountAmountProfit in cost accounts3,50,000Add:Over absorption of production overheadsNotional rentProfit on sale of fixed assetsDividend receivedUnder valuation of closing stock of raw materialsUnder valuation of closing stock of work in progress5,0006,0008,0001,5001,000 50022,000Total3,72,000

Solution ContinuedCost Accounting8Less:Under Valuation of opening stock of raw materialsUnder Valuation of opening stock of work in progressLoss on sale of machineInterest on bank loanProvision for bad debtsGoodwill written offOver valuation of closing stock of finished goods2,5002,0004,0008,0002,00013,0002,000(33,500)Profit as per Financial Accounts3,38,500