Reconciliation of Cost & Financial Accounts

1. Made By:
Dhrumil Shah
SYBBA Div 2
Roll No- 101
Reconciliation of Cost & Financial
Accounts
Cost Accounting

2. Reconciliation
 The 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.
2 Cost Accounting

3. Reasons for difference
Cost Accounting3
 Items 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.

4. Format of Reconciliation
Statement
Cost Accounting4
Particulars
Amount(Rs
.)
Profit as per Cost Accounts XXXX
ADD:
•Incomes considered in Financial Accounts but not in
Cost Accounts
•Notional expenses considered in Cost Accounts but
not in Financial Accounts
•Over - absorption of overheads in Cost Accounts
•Over valuation of opening stock of Raw Material,
WIP and Finished Goods in Cost Accounts
•Under valuation of closing stock of Raw Material,
WIP and Finished Goods in Cost Accounts
•Excess depreciation charged in Cost Accounts
XXXX
Total
XXXX

5. Format continued
Cost Accounting5
Less:
•Expenses/ losses and appropriations considered in
Financial Accounts but not in Cost Accounts
•Under- absorption of overheads in Cost Accounts
•Under valuation of opening stock of Raw Material,
WIP and Finished Goods in Cost Accounts
•Over valuation of closing stock of Raw Material, WIP
and Finished Goods in Cost Accounts
•Lower depreciation charged in Cost Accounts
XXXX
Profit as per Financial Accounts XXXX

6. Practical Example
Cost Accounting6
Profit 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. Particulars
Cost
Accounts
Financial Accounts
Opening Stock of Raw Material 22,500 25,000
Opening Stock of Work In Progress 27,000 29,000
Loss on sale of Machine - 4,000
Interest on bank loan - 8,000
Provision for Bad debts - 2,000
Goodwill written off - 13,000
Production overheads 1,26,000 1,21,200
Notional Rent of factory 6,000 -
Profit on sale of fixed asset - 8,000
Dividend received on investment - 1,500
Closing Stock of Raw Materials 16,000 17,000
Closing Stock of Work-in-progress 12,000 12,500
Closing Stock of Finished Goods 10,000 8,000Prepare a Reconciliation Statement and find out profit as per Financial Acc

7. Solution
Cost Accounting7
Reconciliation Statement of JK Ltd.
Particulars Amount Amount
Profit in cost accounts 3,50,000
Add:
Over absorption of production overheads
Notional rent
Profit on sale of fixed assets
Dividend received
Under valuation of closing stock of raw
materials
Under valuation of closing stock of work in
progress
5,000
6,000
8,000
1,500
1,000
500
22,000
Total 3,72,000

8. Solution Continued
Cost Accounting8
Less:
Under Valuation of opening stock of raw
materials
Under Valuation of opening stock of work in
progress
Loss on sale of machine
Interest on bank loan
Provision for bad debts
Goodwill written off
Over valuation of closing stock of finished
goods
2,500
2,000
4,000
8,000
2,000
13,000
2,000
(33,500)
Profit as per Financial Accounts 3,38,500