Unit
s n 06
is : Reconciliation
i s e si e i ni eof Cost
l is &
is
11
11
Financial Statements
i
ii
Suppose a companykeeps two setsof accounts
costAccounts
Financial Accounts
Attheendoftheyear ifprofitsdon'tmatch reconciliation isneeded
Reasons
fordifference in profits
Balancesdiffer assomeitemsare treated differently inthetwobooks
NotionalRenton owned Building costaccountreflects opportunitycost
ofusing a building
andthuschargesnotionalrentevenon an ownedproperty Whereasinfinancialaccount
paymenttakesplace
NotionalIntereston capital
iftheownerinvests inthebusiness no interestis recorded
financialaccounts as theownercannotpayhimself Butincostaccounts notional interest is
recorded as itshowsrealeconomiccostofusingownfunds Because
ifthatcapitalwould
beinvestedelsewhere it wouldieearnedinterest
Differentvaluation
ofstocks costaccountsvalue closingstockaccordingtothemethod
adopted instoresaccount In financialaccounts weusecost or marketprice whichever
hiii
inen
iiiisiings.in imod philiationmini
Depreciation
costingmigise
machinehourrate Financialaccounts
inCA hittin
Depreciation may
usestraightlinemethodofcharging depreciation
Appropriation ofProfits through donations income tax dividendpaid or
transfer toreserves
absorption aborted
der aÉÉÉa
OverorUnder
A bsorption
ofOverheads in costaccounting overheads are recovered a
a predetermined ratewhereas infinancial accounts theyarerecorded at actualcost
financialprofitislower
incostaccounts wedon'twaituntilnextyeartoknowactualoverheads instead we
crabsorption absorbedon acted
useapredeterminedrate so overheads are absorbed
profitislower
costing
qI Abnormal
gains or losses
, NeedorObjectiveofReconciliation
itrevealsreasonsfordifference in profits loss between cost financial accounts
checksarithmeticaccuracy
ofcostingdata
propercostc ontrol
ascertainment
ensuretrue
fairviewofbalancesheetofbusiness concern
promotes coordination cooperation betweencost financialaccounting departments
maintainsreliability
ofcostaccounts
MethodofReconciliation
Thecost Financial accounts are reconciled through preparation
of a Reconciliation
statement or a MemorandumReconciliation Account
Reconciliation statement as on
Particulars
Profit as Financial accounts xxx
per cost
add xx
less
Profitas perFinancial costaccounts
StartingPoint CostingProfit f inancialAlc
asper
cngProtitm add incomes gainsomitted underrecorded less incomes
gainsovercharged
t that 1 loss
ifpthat expenses lossesovercharged expenses lasses undercharged
financial
11 pitp
financial t ion overvaluation
ofopeningstock FB undervaluation
ofopeningstock FB
undervaluation
ofclosingstock overvaluation
ofclosingstock
s n 06
is : Reconciliation
i s e si e i ni eof Cost
l is &
is
11
11
Financial Statements
i
ii
Suppose a companykeeps two setsof accounts
costAccounts
Financial Accounts
Attheendoftheyear ifprofitsdon'tmatch reconciliation isneeded
Reasons
fordifference in profits
Balancesdiffer assomeitemsare treated differently inthetwobooks
NotionalRenton owned Building costaccountreflects opportunitycost
ofusing a building
andthuschargesnotionalrentevenon an ownedproperty Whereasinfinancialaccount
paymenttakesplace
NotionalIntereston capital
iftheownerinvests inthebusiness no interestis recorded
financialaccounts as theownercannotpayhimself Butincostaccounts notional interest is
recorded as itshowsrealeconomiccostofusingownfunds Because
ifthatcapitalwould
beinvestedelsewhere it wouldieearnedinterest
Differentvaluation
ofstocks costaccountsvalue closingstockaccordingtothemethod
adopted instoresaccount In financialaccounts weusecost or marketprice whichever
hiii
inen
iiiisiings.in imod philiationmini
Depreciation
costingmigise
machinehourrate Financialaccounts
inCA hittin
Depreciation may
usestraightlinemethodofcharging depreciation
Appropriation ofProfits through donations income tax dividendpaid or
transfer toreserves
absorption aborted
der aÉÉÉa
OverorUnder
A bsorption
ofOverheads in costaccounting overheads are recovered a
a predetermined ratewhereas infinancial accounts theyarerecorded at actualcost
financialprofitislower
incostaccounts wedon'twaituntilnextyeartoknowactualoverheads instead we
crabsorption absorbedon acted
useapredeterminedrate so overheads are absorbed
profitislower
costing
qI Abnormal
gains or losses
, NeedorObjectiveofReconciliation
itrevealsreasonsfordifference in profits loss between cost financial accounts
checksarithmeticaccuracy
ofcostingdata
propercostc ontrol
ascertainment
ensuretrue
fairviewofbalancesheetofbusiness concern
promotes coordination cooperation betweencost financialaccounting departments
maintainsreliability
ofcostaccounts
MethodofReconciliation
Thecost Financial accounts are reconciled through preparation
of a Reconciliation
statement or a MemorandumReconciliation Account
Reconciliation statement as on
Particulars
Profit as Financial accounts xxx
per cost
add xx
less
Profitas perFinancial costaccounts
StartingPoint CostingProfit f inancialAlc
asper
cngProtitm add incomes gainsomitted underrecorded less incomes
gainsovercharged
t that 1 loss
ifpthat expenses lossesovercharged expenses lasses undercharged
financial
11 pitp
financial t ion overvaluation
ofopeningstock FB undervaluation
ofopeningstock FB
undervaluation
ofclosingstock overvaluation
ofclosingstock
