2. Reconciliation of cost and financial accounts
1. Definition
2. Importance
3. Procedure for reconciliation
Process costing
1. Definition
2. Importance
3. Costing procedure
3. Definition:
When integrated accounting system is followed, cost and financial accounts are merged
and a single set of books is maintained. Separate set of accounting books do nous exist
for cost accounts and financial accounts. When cost and financial accounts are
separately maintained, it is essential to reconcile the profits of these 2 accounts
Importance:
1. Numerical accuracy
2. Comparability
3. Coordination and cooperation
4. Standardisation
5. Integration
6. Effective control and decision making
4. PROCEDURE FOR RECONCILIATION:
1. STEP 1: Listing of differences - A detailed and exhaustive comparison of costing
figured with those of financial accounts should be made.
2. STEP 2: Selecting base profit and adjusting differences – Either costing or
financial profit or loss should be sleeved as “base profits/loss”
3. STEP 3: Ascertaining resultant profit – after completion of STEP 2, the balance
of the bade profit or loss should be found. Such balancing figures is termed as
“Resultant profit / loss”
5.
6. Definition:
According to CIMA London, “Process costing is that form of operation costing ,
where standardised goods are purchased”. Process costing is a method of costing
which is used to ascertain the cost of output at each stage of production.
Important aspects of Process costing:
1. Process losses
2. Inter Process profits
3. Work in progress
4. Equivalent production
5. Joint products and by products
7. COSTING PROCEDURE:
1. MATERIALS: Materials are issued to the licenses on the basis of material
requisitions.
2. LABOUR: Automation is the order of the day in most of the process industries.
Proportion of direct labour is generally very low in the total cost of a process.
3. DIRECT EXPENSES: Expenses such as electricity, depreciation etc., can be
easily determined for each process and allocated directly.
4. OVERHEADS: Common expenses can be apportioned to different processes on
suitable basis. They maybe recovered at predetermined rates as well based on
past experience.