Bba Study Material to Cost Accounting Topic wise Short Notes of Cost Accounting Systems:After studying This Post You are able to Understand the Topic is, Control Accounts, Integrated Accounting, Inter-locking of Accounts, Non-integrated Accounting, Principle Ledgers, Special Ledger Accounts.
- Non – Integrated Cost Accounting System
- Principal Ledgers And Control Accounts In Non-Integrated System
- Integrated Accounting System
- Benefits Of Integrated Accounting System
- Pre-Requisites For Integration Of Accounting
Bba Study Material to Cost Accounting of Cost Accounting Systems Topic is Non-Integrated Accounting Short Notes
Non – Integrated Accounting
In a non- integrated accounting system two different sets of accounting records are maintained for financial accounting and cost accounting purposes. This system is also called as ‘cost ledger accounting system’. The cost accounts are also maintained in double entry book- keeping as in the case of financial accounts. The non-integrated system of accounting is followed in the following situation when:
- Principal ledgers are to be maintained in costing department
- Principal accounts are to be maintained
- Journal entries are to be passed in cost accounts
The main object of cost accounting is to analyse costs by functions i.e., jobs, processes services and specific overhead categories such as administration, selling or distribution. The special ledger accounts necessary for this purpose depend upon the extent to which analysis is to be made. The maintenance of cost accounts under non-integrated system show the importance of cost accounting in the concern. When a separate set of cost accounts are maintained, it must be ensured that it is properly linked to the financial accounts so as to facilitate easy reconciliation. It is the responsibility of cost accountant in maintenance of cost accounting records in non-integrated accounting system, and the financial accountant will maintain the financial accounting records. In cost accounts no personal accounts are kept but transactions affecting the normal accounts are recorded in both accounts.
Bba study Material to Cost Accounting Systems short note of Inter-Locking of Accounts
Inter-Locking of Accounts
CIMA defines Inter-Locking of accounts “as a system in which the cost accounts are distinct from financial accounts, the two sets of accounts being kept continuously in agreement by the use of control accounts or made readily reconcilable by other means”.
This system of accounting necessitates the maintenance of separate accounts under costing and finance functions and its periodical reconciliation. The cost accounts use the same basic data as the financial accounts, but frequently adopt different bases for matters such as depreciation and stock valuation. Where separate cost accounting and financial accounting system are operated, a cost ledger control account has to be maintained as link between two sets of accounts. At the end of each accounting period, it is necessary to reconcile the cost and financial accounts.
Bba study Material to Cost Accounting Systems short note of Principal Ledgers and Control Accounts
Principal Ledgers and Control Accounts
The principal ledgers and control accounts maintained by costing department under non- integrated accounting system are explained below:
- Cost Ledger
This ledger consists of all impersonal accounts and is made self-balancing by maintaining a control account for each of the other three ledgers explained below.
- Stores Ledger
This ledger cost consist all stores accounts. Individual accounts are maintained for each item of store.
- Work –in-Progress Ledger
In this ledger cost of materials, wages and overheads of each job undertaken is posted irrespective of job account maintained in this ledger.
- Finished Goods Ledger
In this ledger account of completely finished products, jobs are contained. Individual accounts are maintained for each type of finished job, product etc.
Principal Control Account
- General Ledger adjustment (control ) A/c
This account is essential to make the cost ledger ‘self-balancing’. All transactions of income and expenditure which originate in the financial accounts must be entered in the ledger for eventual transfer to cost accounts. The balance in this account will always be equal to the total of all balances of the impersonal accounts.
- stores Ledger Control A/c
This account is debited with all purchase of material for the store and credited with all issues of materials.
- work-in –progress Ledger control A/c
It consists of all direct materials, direct wages, direct expenses, special purchase and expenses. Productions overhead are debited to this account regarding total work-in-progress of different jobs at any time.
- Finished Goods Ledger Control A/c
The total value of finished goods in stock is represented in this account. On sale of goods, the cost of such goods is credited to this account and debited to cost of sales account.
Other important control accounts maintained in cost ledger are as follows:
|· Wages Control A/c
· Production over head A/c
· Administration overhead A/c
|· Selling and distribution overhead A/c
· Cost of Sales A/c
· Costing profit and Loss A/c
The small firms are exempted to maintain detailed cost records. Many organisation prefer to maintain only financial accounts and the cost information will be extracted from the financial accounts on ad hoc basis and the requirements of the situation. The cost of maintaining two different sets of accounts will be higher and sometimes may lead to confusion. The cost ascertainment and analysis is crucial for managerial decision making at least cost.
Bba Study Material to Cost Accounting of Cost Accounting Systems Topic is Integrated Accounting System Short Notes
Integrated Accounting System
CIMA defines that “integrated accounting system refers to the inter-locking of the financial and cost accounting systems to ensure all relevant expenditure is absorbed into the cost accounts. Under this accounting system transactions are classified both according to their function and nature.”
Under integrated accounting system, both financial and cost accounting records are maintained in one set of books to meet the requirements of financial accounting and cost accounting purposed. In other words, we can say, that cost accounting is integrated into the financial accounting system. Integrated accounting records provide the necessary information for ascertainment of cost of each unit, batch or job or any other cost unit and simultaneously financial statements viz, profit and loss account and balance sheet can be prepared without any distortion of the financial accounting information. In this system transactions are recorded based on double entry book-keeping and costs classified on the basis of function which enables the firm in ascertainment of product cost with necessary classification. for example, the purchase of raw material is analysed by its nature and instead of posting it to the purchase account as in financial accounts, directly posted into stores ledger control account, work-in-progress ledger control account or overhead account similarly the payment of direct wages instead of posting into direct wages account, positing is directly made into wages control account or overheads control account.
Bba study Material to Cost Accounting Systems short note of Benefits of Integrated Accounting System
Benefits of Integrated Accounting System
The important benefits of maintaining records on integrated accounting system are as follows:
- In this system only one set of accounts are maintained and there will be single profit figure. The necessity of preparation of reconciliation statement does not arise.
- The maintenance of one set of accounts avoids the duplication of efforts and substantial time and expense is saved.
- There will not be any delay in getting information from the accounting records for financial and costing purposes.
- This system can be more advantageous only if operated in computerised environment and mechanized accounting.
- With the integration of cost and financial accounts, centralisation of accounting and information is possible and it saves both time and expense.
- The simplification of accounting procedures helps in better control of the operations.
- Costing information is generated from the books of original entry. It avoids delay in obtaining information.
- It furnishes all information regarding cost of each product, job or operation and variances will also be highlighted for effective control purpose.
- It provides all information about the profit or loss of the whole organisation and financial position of the concern and helps the management in better control; over the operations.
- This accounting system ensures the ascertainment of marginal cost, variances, abnormal loss and gains.
Bba study Material to Cost Accounting Systems short note of Pre –requisites for Integration of Accounts
Pre –requisites for Integration of Accounts
The important pre-requisites for integration of cost and financial accounts are as follows:
- The top management must be convinced of the advantages of maintenance of records under integrated accounting system and should decide upon the degree of integration is necessitated for the concern. Some firms may prefer to full integration and certain firms may prefer to integrate upto a certain stage of process i.e., prime cost, factory cost, cost of production etc.
- The next step is that convenient coding system should be adopted to identify the accounts for the purpose of cost accounting and financial accounting.
- Accounting staff should be properly trained in dealing with the accounting records for recording of transactions and generation of information for financial and costing purposes.
- Close co-ordination is required between staff dealing with the financial information and costing information.
- The formats are to be developed for increase of speed in accounting and generation of information for financial and costing purpose.
- Computerization of integrated accounting is highly desirable.
- The adjustment entries for prepaid expenses and outstanding expenses should made routine for ascertainment of cost and profit.
Bba Study Material to Cost Accounting of Cost Accounting Systems
- In a non-integrated accounting system two different sets of records are maintained for financial accounting and cost accounting.
- The cost accounts are also maintained in double entry book-keeping as in the case of financial accounts.
- The cost accounts are maintained by function like jobs, processes, services and specific overhead categories like administration, selling, distribution etc.
- In cost accounts no personal accounts are kept but the transactions affecting the normal accounts are recorded.
- Inter-locking is a system in which cost accounts are maintained separately but they are reconciled with financial accounts on periodical basis.
- The principal ledgers maintained in non-integrated accounting system are cost ledger, stores ledger, WIP Ledger, finished goods ledger.
- The important control accounts maintained in cost ledger are wages control A/c , production overhead control A/c Administration overhead control A/c , cost of sales A/c, costing profit and loss A/c.
- Under integrated accounting system, both financial and cost accounting records are maintained in one set of books.
- Integrated accounting facilitates the ascertainment of cost of production, job, process centre and also simultaneously allows to prepare the financial statements viz, profit and loss account and balance sheet.
- Maintenance of integrated accounts avoids duplication of efforts, and reconciliation of cost and financial accounts is not required. It saves both time and expense by using computerised accounting environment.