The cost and financial accounts of a firm need to be reconciled when the profits reported in each do not match. Reasons for differences include items recorded in one account but not the other, and under or over absorption of overheads or valuation of inventory. The reconciliation statement balances the profits by adding income and expenses only in one account and subtracting the same from the other. It helps check accuracy and identify reasons for profit differences between accounts. An example shows reconciling the ₹3.5 lakh profit reported in cost accounts of JK Ltd to the ₹3.385 lakh profit in financial accounts by adjusting for various items treated differently.