Reconciliation of Cost and Financial Accounts Problems and Solutions

Reconciliation of Cost and Financial Accounts: Q&A

1. Why cost and Financial Accounts are Reconciled?

Cost and financial accounts are reconciled to verify the accuracy of both accounts.

2. What is the object of Reconciling cost and Financial accounts?

• To know the reasons for the difference.
• know the situation of under-absorption and over-absorption of overhead.
• To check the mathematical mistake.

3. What are memorandum Reconciliation Accounts?

A memorandum reconciliation account is basically a presentation of a reconciliation statement in T account form balance of this account is termed as profit as per the financial book and shown on the debit side of this account.

4. Why do the cost accounts and financial accounts show different profits?

The difference between costing profit & financial profit is on account of their difference in the object of preparing the account.

5. Explain two reasons for the difference in profit as per cost books and financial books?

• It may be due to under/ over-absorption of overhead.
• It may be due to the difference in the valuation of opening/ closing stock in both books.

6. State any four items of expenses which are included in financial accounts but not in the cost accounts?

The items which are included only in financial accounts are:

1. Income tax.
2. The dividend.
3. Interest on investment, and bank deposits.
4. Donation.

7. State any two items which are included in cost accounts but not in financial accounts?

Two items in cost books only are national rent of self-occupied houses and national interest on own capital.

8. Give the causes of the difference between cost profit and financial profits?

The reasons for the difference in profit are:

1. The difference in overhead.
2. The difference in valuation of stock of raw materials, work in progress finished goods.
3. The difference in depreciation.
4. Abnormal losses or profits in production and abnormal idle time.
5. Items not included in cost books are as follows: the appropriation of profit and, purely financial items such as interest, penalty, donation, etc.
6. Items included in cost accounts only such as notional rent, interest on owned capital, and salary of the entrepreneur.

9. How is the stock of finished goods valued in financial accounts and ost accounts?

In the cost book, only prime cost and factory overhead are considered for the valuation of stock while in financial accounts it is valued at the total cost of production I.e in addition to work costs office overhead is also included hence it is necessary to adjust it while preparing reconciliation statement.

10. Explain the valuation of stock in financial and cost accounts?

In financial accounts, stocks are valued at cost price or market price whichever is less while in cost accounting it is shown only at its cost price.