Cost Accounting Unit-6 : Book Keeping in Cost Accounting Important Question Answer [ Gauhati University Bcom 4th Sem]

 

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Unit - 6

BOOK KEEPING IN COST ACCOUNTING

INTEGRATED ACCOUNTING SYSTEM

Q2. What do you understand by Integral Accounting?

Ans: Integral or Integrated Accounting is the name, given to a system of accounting in case of which cost and financial account are maintained in the same set of books. The two separate set of accounts maintained under the interlocking system are inerged into a composite system. Thus, the term 'Integral' or 'Integrated' accounting means the merger of both financial and cost accounts, and maintenance of only one integrated ledger containing both financial and cost records. Under the integrated system, accounts are maintained in such a way as to give full information requierd for cost accounting purposes as well as for financial accounting.

Q3. Give five features of Integral Accounting.

Ans: The essential features of an Integral or Integrated Accounting System are as follows:

(i) All control accounts for stores, work-in-progress and finished goods are maintained in the general ledger itself.

(ii) Wages and overhead accounts are maintained in the usual manner. At the end of the period, these are analysed, and transfers are made to the relevant accounts such as service department, production department etc.

(iii) Accurals and prepaid expenses are brought into account for each cost period instead of at the time of preparing financial statements.

(iv) Complete details of all assets and liabilities are kept and this system does not use a notional accounts to represent all impersonal accounts.

(v) Under this system, general ledger adjustment is not at all maintained and detailed accounts of assets and liabilities are maintained:

Q4. Enumerate the advantages of Integral Accounting.

Ans: The following are the main advantages of Integral Accounting System :

(i) Abolition of Duplication of work: There is no duplication of recording and effort as in non-integral system and as such in non- integral system and such this system is simple and economical.

(ii) No need to prepare Reconciliation statement: Since only one set of accounts are maintained, consequently there will be single profit figure. Hence, there is no need to prepare any reconciliation statement.

(iii) Co-ordination in Accounting Function: This system tends to co-ordinate the functions of different sections of the accounts department since all factors are integrated and directed towards achievements of one aim that is providing a high level of efficiency.

(iv) Automatic check on correctness of cost data: Cost and financial informations are readily made available and there is an automatic check on the correctness of the cost data.

(v) Facilitates Mechanised Accounting: The system creates conditions which are eminently suitable for the introduciton of mechanised accounting. (vi) Avoids delay in obtaining the data: As cost accounts, are posted directly from the books of original entry, there is no delay in obtaining cost data. 

(vii) Simplification of Accounting procedures: Integrated accounting facilitates simplification of accounting procedures and centralisation of accounting function for achieving more effective control.

Q5. What are the limitations of Integrated Accounting? 

Ans: The system suffers from the following limitations :

(i) Merging of financial books with cost books into a single set of books makes it complicated.

(ii) Hundred percent integration is neither done many times nor feasible in many cases. As a result the need for preparing a reconciliation statement remains.

(iii) The system may not serve the purpose of detailed costing and financial information required by large business houses on a continuing basis.

(iv) Integrated accounting system is comparatively more sophisticated and hence its handling requires trained and more efficient persons.

(v) The system causes delay in providing information. Since the system is expected to serve both the costing and financial requirements, it gets complicated.

Q6. What are the essential pre-requisites of Integrated Accounting System?

Ans: The following are the pre-requisites of integrated accounting system:

(i) A suitable coding system should be developed to serve the purposes of both financial and cost accounts.

(ii) The management must decide about the extent of integration of the two sets of books. Some concerns prefer to integrate upto the stage of prime cost or factory cost, whereas others prefer to integrate the entire accounting records.

(iii) There must be an agreed routine regarding treatment of provision for accruals, prepaid expenses, other adjustment required for the preparation of interim accounts.

(iv) There must be perfect co-ordinations between the staff dealing with the cost information and financial information.

(v) Computation of integrated accounting is desirable. In Computerised environment, the maintenance of two sets of books of accounts is dispensed with.

(vi) Suitable formats should be introduce for increase of speed in accounting and generation of data for costing and financial purpose.

(vii) Accounting staff should be properly trained for handling accounting records efficiently.

Q7. Explain the principles of Integrated Accounting.

Ans: The following principles shall be taken into consideration while designing integrated accounting systems:

(i) Degree of integration: First of all degree of integration should be determined. In some concerns, integration is done upto the stage of prime cost or factory cost while in others, integration of full records is done.

(ii) Classification of expenditure: The degree of integration will determine the classification of expenditure. The classification of expenditure shall be made according to functions, for example, factory expenses, office expenses, selling and distribution expenses.

(iii) Control Accounts: There must be control account for each element of cost. There must be a suitable coding system to serve both financial accounting and cost accounting purposes.

(iv) Full details of items: Full particulars of items posted to the control accounts are supplied to the cost office at regular intervals. These details are analysed and tabulated by cost office in accordance with the system of costing in use.

(v) The amont of details recorded in the ledger : The extent of the details to be recorded in the Ledger depends upon circumstances but attempts should be made to keep it to the minimum. But full details and complete information regarding each department, process or job are, however given in the tabulation prepared by the cost office.

(vi) Co-ordination: There must be perfect co-ordination between the staff dealing with the financial information and cost information.

(vii) Agreed Routine: There must be an agreed routine regarding treatment of provision for accruals, prepaid expenses, other adjustment required for the preparation of interim accounts.

(viii) Coding: A suitable coding system should be developed to serve the purposes of both financial and cost accounts.

Q8. What is Third Entry System?

Ans: Third Entry System is a variant of integrated accounts. In this case, in the financial books are ordinarily maintained, an account called cost Ledger Control Account is debited whenever any expenditure relating to costs is incurred. This debit is in addition to the ordinary and usual accounts to be debited. 

Q9. Explain the procedure for integration of cost and financial accounts.

Ans: In order to integrate the cost and financial accounts, the following procedure is followed :

(i) Integration of cost and financial accounts can be achieved by introducing and operating the essential accounts of cost accounts in the financial books of accounts. That means, in addition to the accounts such as share capital, assets, creditors, debtors, bank etc., the financial books will have the nominal accounts which facilitate proper ascertainment of cost. (ii) All accounts, except the General Ledger Adjustment Account,

that are maintained in cost ledger (as under Non-integrated Accounting

System) are also continued to be maintained under Integrated Accounting

System. That means, under Integrated Accounting System, General

Ledger Adjustment Account is eliminated.

(iii) For the purpose of passing journal entries, it is necessary to observe each and every transaction, entries under cost accounting and under financial accounting and then decide about how an integration of these in one set of books can be made.

NON-INTEGRATED ACCOUNTING SYSTEM

Q10. What is non-integrated accounting system or cost control accounts?

Ans: Generally, financial and cost accounts are maintained separately by large scale concerns. In financial accounting there are three types of accounts - personal account, real account and nominal account. In cost accounts we are particularly concerned with nominal accounts and to some extent real accounts, which may be considered as impersonal accounts. As the cost books are maintained on the principle of double entry system, in cost books Genreal Ledger Adjustment Account or Cost Ledger Control account is maintained instead of Personal Accounts and Real Accounts. Although this method is based on double entry system but cost ledger is made self balancing by the use of control accounts.

Q11. What are the characteristics of non-integrated accounting system?

Ans: Following are the characteristics of non-integrated accounting system:

(i) Separate account books are maintained to record financial and cost transactions.

(ii) Financial and cost Accountant both are responsible to record transactions in the book separately.

(iii) The double entry system is adopted for recording the transactions in both accounts books.

(iv) Personal and real accounts are not opened in cost account books

(v) General Ledger Adjustment Account and Cost Ledger Control Account is opened in cost books to complete the double entry system.

(vi) Reconciliation statement is prepared to reconcile profits as revealed by cost accounts books and financial account books.

Q12. What are the advantages or objectives of non-integrated accounting system or cost control accounts?

Ans: The advantages or objectives of non-integrated accounting system are

(i) Due to accounts are maintained on double entry system, verification of accuracy of double entry of all transaction can be done by the preparation of trial balance with the help of balance of accounts. 

(ii) Detailed informations related to cost are always available which is more useful in future planning.

(iii) Reconciliation of the results of cost and financial accounts can be done easily.

(iv) Control accounts summarise masses of detailed information contained in subsidiary records and as such are valuable to management in policy formation.

(v) Control accounts provide internal check and permit prompt preparation of profit and loss account at the end of each period without waiting for all work to be done in balancing individual subsidiary ledger. 

Q13. Explain the principal ledger accounts maintained in a system of cost control accounting or non-integrated accounting system?

Ans: Depending on the size of an organisation, the cost department may maintain one or more ledgers. Four important ledgers kept by cost department are as follows

(i) Cost Ledger: This is the principle ledger in which all accounts relating to income and expenditure are kept. Hence, it contains all impersonal accounts. It is made self balancing by maintaining threin a control account for each of the other ledgers.

(ii) Stores Ledger: In this ledger all stores (raw materials and supplies used in manufacture and distribution of goods or in the unkeep of plant and equipment) accounts are kept. A separate account is opened for each item of stores. It is used for recording receipts, issues and balances of stores both in quantity and amount.

(iii) Work-in-progress Ledger : This Ledger contains all accounts of various jobs and products in process. Each job or product is assigned a specific number for identification. All expenditure incurred are debited to the concerned job or product account. When job or product is completed, the same is transfered to the relevant account into the finished goods ledger.

(iv) Finished goods ledger : Accounts of all finished products are kept in this ledger. As soon as a product is complete, it is transferred from work-in-progress ledger to the finished goods ledger. A separate account is opened for each type of finished product.

Q14. Distinguish between Non-Integrated and Integrated

Accounting System.

Ans: The differences between the non-integrated and integrated accounting system are as follows :

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RECONCILIATION OF COST AND FINANCIAL ACCOUNTS

Q15. What do you mean by recociliation of cost and financial accounts?

Ans: The statement which is prepared to tally the results, shown by cost accounts and financial accounts is known as Reconciliation Statement.

It explains the causes of difference between two profits as shown by the cost accounts and financial accounts. Such profits are reconciled by adding to or deducting from the profit shown by one set of books to arrive at the profit as shown by the other set of books.

Q16. What is the purpose of reconciliation of cost and financial accounts?

Or

Explain the various objectives of preparation of reconciliation statement.

Ans: Following are the objectives of reconciliation:

(i) To depict the causes of difference: The purpose of preparing reconciliation statement is to show the causes of difference in profits of cost and financial accounts.

(ii) To Judge the accuracy of costing records: The purpose of reconciliation is to judge the accuracy of recording of books of both the sets. If the reconciliation is struck and the results tally, it gives a satisfactory idea that both the sets of books have been kept with accuracy.

(iii) To know the items unrecorded or recorded with a difference in any one set of books: It is in the financial books that several items are found recorded which do not find place in cost books. A part from giving an idea of such items, the reconciliation shows the under/ over absorbed overheads, difference in stock valuation and depreciation charged.

(iv) To bring perfectness in cost accounts: The cost accounts can not be said to be perfect until the reconciliation statement is prepared. It is known as a last part of cost accounts. In the absence of reconciliation, the cost accounts are said to be incomplete.

(v) Better co-operation between cost and financial accounts : Reconciliation aims at bringing better co-operation and co-ordination between cost and financial accounting.

17. What are chat sources of differences between costing profits and financial profits?

Or

What are the reasons for difference in profits of cost and financial accounts?

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Q18. Explain the procedure of preparation of reconciliation statement.

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PRACTICAL PROBLEM

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