DU SOL Study Material 2 B.Com 3rd Year Cost Accounting

LESSON 1

RECONCILIATION OF COST AND FINANCIAL ACCOUNTS - I

1.0 Introduction
1.1 Objectives
1.2 Requirement for Reconciliation
1.3 Reasons for difference in Profit/Loss
1.4 System of Reconciliation
1.5 Memorandum Reconciliation Account
1.6 Summary of the chapter
1.7 Exercise

1.1 Objectives

After studying this chapter, you would be able to:

Understand the meaning and need of reconciliation of cost accounts and
financial accounts
Explain the reasons for difference in profit or loss as per cost and financial accounts

Know the method of preparing a reconciliation statement or a memorandum
reconciliation account
When cost accounts and financial accounts are maintained separately in two different sets of
books, two profit and loss accounts will be prepared-one for costing books and the other for
financial books. The profit or loss shown by financial books may not agree with that shown by
costing books. So, both sets of books are tallied to know the reasons for disagreement of the
two profits.
It is essential to know that the question of reconciliation of cost and financial accounts
arises only under non-integral system. However, under the integral accounts, the problem
of reconciliation does not arise since cost and financial accounts are integrated into one set
of books and only one Profit and Loss Account is prepared.

1.2 Requirement for Reconciliation

The necessity for reconciliation arises owing to the following reasons-

1. It discloses the causes for variance in profit or loss between cost and
financial accounts.
2. Reconciliation aids in checking the arithmetic accuracy of both sets of
books. In other words, it enables to test the reliability of cost accounts.
3. It promotes coordination between cost accounting and financial accounting
departments.
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