Praveen Kumar(111)

Ankur Khandelwal(112)
Saurabh Ahuja(113)
Arun Jain(114)
Sahar Airom(117)
A method of accounting, which provides for assembling and recording of
all elements of cost incurred to accomplish a purpose, to carry on an
activity or operation, or to complete a unit of work or a specific job.

Financial accountancy (or financial accounting) is the field of

accountancy concerned with the preparation of financial statements for
decision makers, such as stockholders, suppliers, banks, employees,
government agencies, owners, and other stakeholders.
 WHEREBY PROFITS REVEALED
BY TWO SETS OF BOOKS-
FINANCIAL ACCOUNTS AND COST
ACCOUNTS ARE TALLIED AFTER
ASCERTAINING THE REASONS
FOR DISAGREEMENT OF TWO
PROFITS.
When cost and financial accounts are maintained
separately, the profit shown by one set of books may not
agree with that of the other set. In such a situation, it
becomes necessary to reconcile the results (profit / loss)
shown by two sets of books
Cause for difference between profit shown by cost and
financial accounts is that there are certain items which
appear in financial books only and are not recorded in
cost accounting books
Similarly, there may be some items which appear in cost
accounts only and do not find a place in the financial
books
APPROPRIATION OF PROFITS
• PROVISION OF TAXATION
•TRANSFER TO RESERVES
•GOODWILL
•PRELIMINARY EXPENSES WRITTEN OFF
 PURELY FINANCIAL CHARGES

LOSSES ON SALE OF INVESTMENT

PENALTIES AND FINES
EXPENSES ON TRANSFER ON COMPANY’S OFFICE.

PURELY FINANCIAL INCOMES

INTEREST RECEIVED ON BANK DEPOSITS

PROFITS MADE ON SALE OF INVESTMENT,FIXED ASSETS
TRANSFER FEE RECEIVED.
 DEPRECIATION ON AN ASSET EVEN WHEN THE BOOK VALUE
OF AN ASSET IS REDUCED TO A NEGLIGIBLE FIGURE.
NOTIONAL RENT
UNDER/OVER ABSORPTION OF EXPENSES IN COST
ACCOUNTS
ABNORMAL WASTAGE OF MATERIALS
COST OF ABNORMAL IDLE TIME
THE PREPARATION OF RECONCILIATION STATEMENT INVOLVES
THE FOLLOWING STEPS:
1. PROFITS AS PER ANY SET OF BOOKS(COST OR FINANCIAL)
MAY BE TAKEN AS A BASE.
2. THE EFFECT OF THE PARTICULAR CAUSE OF DIFFERENCE
SHOULD BE STUDIED ON THE PROFITS SHOWN BY THE
OTHER SET OF BOOKS.
3. IN CASE,THE CAUSE HAS RESULTED IN AN INCREASE IN
THE PROFIT SHOWN BY OTHER SET OF BOOKS,THE
AMOUNT OF SUCH INCREASE SHOULD BE ADDED TO THE
PROFIT AS PER THE FORMER SET OF BOOKS WHICH HAS
BEEN TAKEN AS A BASE.
4. IN CASE,THE CAUSE HAS RESULTED IN A DECREASE IN THE
PROFIT SHOWN BY OTHER SET OF BOOKS,THE AMOUNT OF SUCH
DECREASE SHOULD BE SUBTRACTED FROM THE PROFIT AS PER THE
FORMER SET OF BOOKS WHICH HAS BEEN TAKEN AS A BASE .

IN THE RECONCILIATION IT DOES NOT MATTER IN WHICH FORM

THE STOCK IS KEPT,i.e, RAW MATERIAL,WORK-IN-PROGRESS OR
FINISHED STOCKS.THE BASIC PRINCIPLE IS THAT IF THE
OPENING STOCK IS HIGHER, PROFIT IS LOWER WHEREAS IF THE
CLOSING STOCK IS HIGHER, PROFIT IS HIGHER, AND VICE
VERSA. FOR EXAMPLE:
IF OPENING RAW MATERIAL IS LOWER IN COST ACCOUNTS,THE
COSTING PROFIT WILL BE HIGHER .
IF CLOSING WORK IN PROGRESSS IS HIGHER ON COST
ACCOUNTS,COSTING PROFITS WILL BE HIGHER.
FROM THE FOLLOWING FIGURES PREPARE A RECONCILIATION
STATEMENT

NET PROFIT AS PER FINANCIAL RECORDS RS.10,300

NET PROFIT AS PER COSTING RECORDS RS10,000
INTEREST ON CAPITAL INCLUDED
IN FINANCIAL ACCOUNTS RS.500
WORKS OVERHEADS UNDER-RECOVERED
IN COST ACCOUNTS RS500
DIVIDEND RECEIVED RS1,000
RENT FOR OWNED BUILDING CHARGED IN
IN COST ACCOUNTS RS300
 RS RS
PARTICULARS + -
PROFIT AS PER COST ACCOUNTS 10,000

LESS:WORK OVERHEAD UNDER 500

CHARGED IN COST ACCOUNTS
INTERSET ON CAPITAL INCLUDED IN 500
FINANCIAL ACCOUNTS

ADD:DIVIDEND RECEIVED 1,000

RENT ON OWNED BULIDINGS 300
11,300 1,000
PROFITS AS PER FIANCIAL 10,300
ACCOUNTS