BBA Cost Accounting Reconciliation of Cost And Financial Accounts

Memorandum Reconciliation Account 

It is an account not being a part of double entry system of book – keeping. It is simply a method by which a record can be made of differences in cost accounts and financial accounts, in order to show why their respective profit figures are different. The debit and credit of normal account will not apply in preparation of memorandum reconciliation account. In this statement, profit under one set of accounts is taken as opening balance and all items of difference required to be deducted are debited and those to be added are credited to this account. The balancing figure of this account is the profit shown by the other set of accounts. A format of Memorandum Reconciliation Account is given below:

Reconciliation Statement

In preparation of reconciliation statement, profit shown by one set of account is taken as base profit and items of difference are either added to it or deducted from it to arrive at the figure of profit shown by other set of accounts.

Bba Cost Accounting Reconciliation of Cost And Financial Accounts

Summary

• The financial account deal with classification, recording and summarisation of transactions and prepares financial statements viz., profit and loss account and balance sheet.
• The cost accounting deals with ascertainment of cost and profitability of products, divisions, centres etc.
• Different accounting principles, methods and practices are followed under financial accounting and cost accounting systems.
• The two sets of accounts show different figures and financial results and it requires periodical reconciliation of both the accounts.
• The reconciliation promotes integrity of both the systems of accounting and helps in standardisation of policies.
• The difference in profit as shown in cost accounts and financial accounts may relate to the reasons like some expenses only shown in financial accounts like preliminary expenses, capital issue expenses; certain items of expenses are shown only cost accounts like interest on capital, notional rent; overheads absorbed in cost accounts are based on pre- determined overhead recovery rates; differences in valuation of stock and WIP; differences in rates of depreciation charged etc.
• The cost accounts and financial accounts are reconciled by preparation of either memorandum reconciliation account or reconciliation statement.