Anda di halaman 1dari 38

Integrated Accounting System

1. Introduction
In the integrated accounting system, separate set of accounts under cost accounting and financial
Accounting systems are not maintained. The accounts are integrated and only a single set of accounts are
Maintained. This enables a firm to eliminate separate Profit and Loss Accounts under financial
accounting and cost accounting systems and only one Profit and Loss Account is prepared. Thus there is
no question of two separate amounts of profits being disclosed from the two different set of books. The
need for reconciliation of profits shown by cost accounts and financial accounts is therefore is eliminated.
This chapter proposes to discuss the mechanics of this integrated system of accounting.

2. Meaning and Features


As mentioned above, under this system of preparing accounts, financial and cost accounts are integrated.
In other words, a single book keeping system, which contains both financial and cost accounts, is known
As integral accounting system. The need for reconciliation between the profits shown by cost accounts
and Financial accounts are eliminated totally as only one set of books of accounts is maintained. The
benefits of this system are as follows.

3. Benefits from Integrated Accounting System


The benefits of integrated accounting system are as follows:
A. As only one set of accounting records is kept, the need for reconciliation between the profits shown
by the two records is eliminated.
B. The duplication of work is eliminated, thus the cost of operating this system is reduced.
C. This method is simple to understand and easy to operate. Unnecessary complications are Eliminated.
D. Cost data can be available promptly and regularly.
E. There is a cross checking of various figures in cost as well as financial accounts. This ensures accuracy
of figures of cost and financial data.
F. Use of mechanized accounting methods can be made.

4. Working Mechanics of Integrated Accounting System


Before accepting this system, the management has to decide about the degree of integration that is
planned. Some of the firms integrate accounts up to the stage of prime cost or factory cost. Sometimes the
entire Record is integrated. The following accounts are normally maintained under this system.
A. Main Accounts: The following accounts are mainly kept.
I. Stock Control Accounts: This account is prepared for the following items:
a. Raw Materials: Opening stock and purchases are debited to this account while the materials
Issued are credited. The balance represents the raw material on hand at the end of the Period.
b. Work-in-progress: The opening stock of work-in-progress and factory overheads are debited
to this account while the cost of finished goods is credited. The closing stock, if any, is carried Forward
to the next period.
c. Finished Stock: This account is known as finished goods account also. It is debited with the finished
goods and credited with cost of sales.
II. Cost of Sales Account: The Cost of goods sold is debited to this account and the finished goods
account is credited.
III. Assets Accounts: These accounts are opened for each of the fixed assets possessed by the fi rm. For
example, accounts are maintained for assets like Plant and Machinery, Furniture and Fixtures, Land and
Building, Vehicles and other such fixed assets owned by the fi rm. Transactions connected with the fixed
assets are entered in these accounts. For example, the purchases are debited while depreciation as well as
any disposal of such assets is credited to these accounts.
IV. Debtors and Creditors Control Account: Transactions connected with debtors and creditors are
recorded in these accounts. The balance shown by debtors account should tally with the sales ledger while
the balance shown by creditors account should tally with the purchase ledger.
V. Prepaid Expenses and Outstanding Expenses Account: These accounts are maintained for recording
any prepaid expenses or any expenses due but not paid, i.e. outstanding expenses. The prepaid amount is
debited to the prepaid account and credited to overhead control accounts.

Thus it is ensured that the expenses, which is related to the period only is charged to the work-in-progress
account. In case of outstanding expenses, the outstanding expenses account is credited and the overhead
control account is debited. At the time of actual payment, the expenses outstanding account is debited and
corresponding credit is given to either cash account or bank account or it is adjusted through overhead
control account.
VI. Direct Wages and Overhead Costs Control Accounts: When these costs are incurred, the appropriate
control accounts are debited and cash account is credited. Thus, when direct wages are paid, they are
Debited to direct labour control account and transferred to the work-in-progress account on the debit side.
Appropriate overhead control account is credited. In case the actual payment do not tally with the
expenditure related to that period, appropriate adjustment is made.
VII. Cost Centre Account: An account is kept for each department or cost centre. This helps in knowing
the cost of a department and controlling costs associated with different departments.
VIII. Cash Account: All cash receipts and payments are recorded in this account.

5. Interlocking Accounts
Cost and Financial Accounts are said to be interlocked, when independent set of books are maintained
For each of them. These accounts are interlocked through control accounts maintained in the two sets of
books. Cost Ledger Control Account is maintained in the financial books and a General Ledger
Adjustment Account is maintained is costing books. In this manner, connection between the two sets of
books is maintained. In costing books, all entries relating to fixed assets, cash etc. are posted in General
Ledger Adjustment Account. In case it is desired to integrate the two trial balances into one, the Cost
Ledger Control Account and General Ledger Adjustment Account can be omitted because they are
maintained on contra principle.
The integration as discussed in the above paragraphs, aims at maintenance of only one set of books in
which all transactions are recorded By eliminating, cost ledger, all control accounts are maintained in the
general ledger. The main benefit of integration is elimination of two sets of records and thus the need for
Reconciliation is eliminated. Integration is beneficial from economy angle also as considerable cost can
be saved through maintaining only one set of records. However due to some difficulties, that may crop

up in the implementation of the same, sometimes interlocking of accounts is preferred. For example, a
separate Cost Accounting Department may become necessary considering the growing importance of cost
accounting and hence an interlocking accounting system may have to be operated.

6. Accounting Entries
The journal entries under integral and non-integral accounting systems are given in the following table.

Items

Non-integrated System

Non-integrated System

Integrated Systems

Financial Books

Cost Books

1. Purchase of

Purchase A/c Dr

Stores Ledger Control

Stores Ledger Control

Materials

To Purchase Ledger

A/c Dr.

A/c- Dr.

To Purchase Ledger

To General Ledger

To Creditors A/c

Control A/c

Adjustment A/c

[or creditors]
2. Issue of

Work-in-progress Ledger

Work-in-progress

materials for

Control A/c Dr

A/c Dr

production

To Stores Ledger

To Stores Ledger

Control A/c

Control A/c

Wages A/c Dr

Wages A/c/ Wages

Wages A/c/ Wages

To Cash/bank A/c

Control A/c Dr.

Control A/c Dr.

To General Ledger

To General Ledger

Adjustment A/c

Adjustment A/c

Work-in-progress Control

Work-in-progress

A/c Dr

Control A/c Dr

[Direct labour]

Factory overhead

Factory overhead

A/c Dr

3. Payment of wages

4. Analysis and
Distribution of wages

No entry

No entry

Control A/c Dr

[Factory indirect labour]

Administration

Administration Overhead

Overhead

Control A/c Dr

Control A/c Dr

[Admn.indirect labour]

S & D Overhead

S & D overhead

Control A/c Dr

Control A/c Dr

To Wages Control A/c

To wages Control A/c


5. Payment for

Expenses A/c Dr

Factory/Adm/S & D

Factory/Adm/S & D

indirect expenses

To Cash A/c

Overhead A/c Dr

Overhead A/c Dr

like power, repairs

To Creditors A/c

To General Ledger

To Cash A/c

Adjustment A/c

To Creditors A/c

Work-in-progress Control

Work-in-progress

Factory Overheads

A/c Dr

Control A/c Dr

at pre-determined

To Factory Overheads

To Factory Overheads

rates

Control A/c

Control A/c

Factory Overhead Control

Factory Overhead

A/c Dr

Control A/c Dr

To Costing Profit & Loss

To Costing Profit &

A/c

Loss A/c

Stock Ledger Control

Stock Ledger Control

A/c Dr

A/c Dr

To work-in-progress

To work-in-progress

Ledger Control A/c

Ledger Control A/c

etc.
6. Recording of

7. Factory Overheads

No entry

No entry

over absorbed

8. Jobs completed

No entry

9. Interest paid

Interest A/c Dr

No entry

To Cash A/c
10. Rent of own

No entry

Works Overhead

To General Ledger

A/c Dr

Adjustment A/c

To Rent [notional] A/c

Costing P & L A/c Dr

P & L A/c Dr

To Wages A/c

To Wages A/c

Sales Ledger Control

General Ledger

Sales Ledger Control

A/c Dr

Adjustment A/c Dr

A/c Dr

To Sales A/c

To Cost of Sales A/c

To Sales A/c

No entry

time
12. Sales [Credit]

To Cash A/c
Works Overhead A/c

premises

11. Abnormal idle

Interest A/c Dr

Problems and Solutions

1. Journalize the following transactions in the integrated books of account in the books of XYZ
Ltd.
Particulars

Amount Rs.

Credit purchases

12, 00, 000

Production wages paid

7, 00, 000

Stocks issued to production orders

8, 00, 000

Work expenses charged to production

4, 50, 000

Finished goods transferred from production orders

18, 00, 000

Administration expenses charged to production

1, 50, 000

Work expenses outstanding

1, 20, 000

Work expenses paid

4, 60, 000

Solution: The journal entries passed are as under:


Journal Entries Under Integral System of Accounting
Date Particulars
01

Store Ledger Control A/c Dr.

L.F. Debit Rs.

Credit Rs.

12, 00, 000

To Sundry Creditors A/c

12, 00, 000

[Being goods purchased on credit]


02

Wages Control A/c Dr


To Cash/Bank A/c
[Being wages paid]

7, 00, 000
7, 00, 000

03

Work-in-progress Control A/c Dr

8, 00, 000

To Stores Ledger Control A/c

8, 00, 000

[Being stores issued against production


orders]
04

Work-in-progress Control A/c Dr.

4, 50, 000

To Production Overhead Control A/c

4, 50, 000

[Being the work expenses allocated to


production/jobs]
05

Finished Goods Ledger Control A/c Dr

18, 00, 000

To Work-in-progress Ledger Control A/c

18, 00, 000

[Being goods finished during the year


transferred to finished goods account]
06

Work-in-progress Control A/c Dr.

1, 50, 000

To Administration Overhead Control A/c

1, 50, 000

[Being administrative overheads charged to


production]
07

Production Overhead Control A/c Dr.

1, 20, 000

To Outstanding Works Overheads A/c

1, 20, 000

[Being outstanding production overheads


recorded in the books
08

Overhead Control A/c Dr.


To Cash/Bank A/c
[Being the works expenses paid]

4, 60, 000
4, 60, 000

2. Journalize the following transactions assuming that the cost and financial accounts are integrated.
_ Raw materials purchased: Rs.40, 000
_ Direct materials issued to production: Rs.30, 000
_ Wages paid [30% direct]: Rs.24, 000
_ Direct wages charged to production: Rs.16, 800
_ Manufacturing expenses incurred: Rs.19, 000
_ Manufacturing overheads charged to production: Rs.18, 400
_ Selling and distribution costs: Rs.4, 000
_ Finished products [At cost] : Rs.40, 000
_ Sales: Rs.58, 000
_ Closing stock: Nil
_ Receipts from debtors: Rs.13, 800
_ Payment to creditors: Rs.22, 000

Solution:
Journal Entries

Date Particulars
01

Stores Ledger Control A/c Dr.

L.F.

Debit Rs.

Credit - Rs.

40, 000

To Sundry Creditors A/c

40, 000

[Being materials purchased]


02

Work-in-progress ledger control A/c Dr


To Stores Ledger Control A/c
[Being material issued to production]

30, 000
30, 000

03

Wages Control A/c Dr.

24, 000

To Bank A/c

24, 000

[Being wages paid including 30% indirect wages]


04

Factory Overheads A/c Dr.

7, 200

To Wages Control A/c

7, 200

[Being the indirect wages charged to production]


05

Work-in-progress Ledger Control A/c Dr

16, 800

To Wages Control A/c

16, 800

[Being the direct wages charged to the production]


06

Factory Overheads A/c Dr.

19, 000

To Bank A/c

19, 000

[Being the manufacturing overheads incurred]


07

Work-in-progress Ledger Control A/c Dr

18, 400

To Factory Overheads A/c

18, 400

[Being the overheads charged to production]


08

Selling and Distribution Overheads A/c Dr

4,000

To Bank A/c

4,000

[Being selling and distribution costs incurred]


09

Finished Stock Ledger Control A/c Dr

40, 000

To Work-in-progress Ledger Control A/c

40, 000

[Being cost of production transferred to Finished


Stock Ledger Control A/c
10

Cost Of Sales A/c Dr

44, 000

To Finished Stock Ledger Control A/c

40, 000

To Selling And Distribution Overheads A/c

4, 000

[Being the cost of finished units]

11

Sales Ledger Control A/c Dr

58, 000

To Cost of Sales A/c

58, 000

[Being the amount of Sales]


12

Bank A/c Dr

13, 800

To Sales Ledger Control A/c

13, 800

[Being amount received from debtors]


13

Bought Ledger Control A/c Dr


To Bank A/c

2, 200
2, 200

[Being the amount paid to sundry creditors]

* On the assumption that all units produced are sold and selling and distribution overheads are charged
to production.

3. From the following transactions, pass the journal entries under an integral accounting system
a) Issued materials Rs.3, 00, 000 out of which Rs.2, 80, 000 [standard Rs.2, 40, 000] is direct material
b) Net wages paid Rs.70, 000, deductions being Rs.12, 000 [standard Rs.75, 000]
c) Gross salaries payable for the period Rs.26, 000 [standard Rs.25, 000] deductions Rs.2, 000
d) Sales [credit] Rs.8, 00, 000
e) Discount allowed Rs.5, 000
f) Salaries and wages allocation Rs.60, 000 direct and out of balance of Rs.42, 000, 50% production,
30% administration and 20% selling and distribution overheads

Solution:
Journal Entries
Date Particulars
01

L.F.

Debit Rs.

Work-in-progress Control A/c Dr

2, 40, 000

Material Price Variance A/c Dr

40, 000

Production Overheads Control A/c Dr

20, 000

To Stores Ledger Control A/c

Credit Rs.

3, 00, 000

[Being the issue of materials and the work in progress


control account is debited with standard cost]
02

Wages Control A/c Dr

75,000

Wage Variance A/c Dr

7,000

To Deductions A/c

12,000

To Cash A/c

70,000

[Being the net wages paid Rs. 70, 000, standard


wages debited to wages control account Rs.75,000
and difference debited to the wage variance account]

03

Salaries Control A/c Dr

25,000

Salaries Variance A/c Dr

1,000

To Deductions A/c

2,000

To Cash A/c

24,000

[Being gross salaries control account debited with


standard salaries, variance debited to salaries variance
account and net salaries paid credited to cash account]
04

Debtors Control A/c Dr

8,00,000

To Sales A/c

8,00,000

[Being the goods sold on credit]


05

Selling Overheads A/c Dr

5,000

To Debtors A/c

5,000

[Being discount allowed to debtors]


06

Work-in-progress Control A/c Dr

62,000

Production Overheads A/c Dr

20,000

Administration Overheads A/c Dr

12,000

Selling and Distribution Overheads A/c Dr

8,000

To Wages Control A/c

75,000

To Salaries Control A/c

25,000

To Wages Variance A/c

2,000

[Being the allocation of salaries and wages in direct and


indirect and charging of the same to the appropriate
accounts]

4. The following are the extracts of balances of X Co Ltd. in its integrated ledgers as on 1st January
2007.

Particulars

Debit Rs.

Stores Control A/c

36,000

Work-in-progress A/c

34,000

Finished goods A/c

26,000

Cash at bank

20,000

Creditors Control A/c

Credit Rs.

16,000

Fixed Assets A/c

1,10,000

Debtors Control A/c

24,000

Share Capital A/c

1,60,000

Depreciation Provision A/c

10,000

Profit & Loss A/c

64,000

Total

2,50,000

2,50,000

Transactions for the twelve months ended on 31st December 2007 were as follows:
_ Direct wages: Rs.1, 74, 000
_ Indirect wages: Rs.10, 000
_ Stores purchased on credit: Rs.2, 00, 000
_ Stores issued to repair order: Rs.4, 000
_ Stores issued to production: Rs.2, 20, 000
_ Goods finished during the period at cost: Rs.4, 30, 000
_ Goods sold at sales value [on credit]: Rs.6, 00, 000
_ Goods sold at cost: Rs.4, 40, 000
_ Production overhead recovered: Rs.96, 000

_ Production overheads: Rs.80, 000


_ Administration overheads: Rs.24, 000
_ Selling and Distribution overheads: Rs.28, 000
_ Depreciation [works]: Rs.2, 600
_ Payment to suppliers: Rs.2, 02, 000 paid by cheque
_ Payments by customers: Rs.5, 80, 000 paid by cheque
_ Rates prepaid included in production overheads incurred: Rs.600
_ Purchases of fixed assets: Rs.4, 000
_ Charitable donation: Rs.2, 000
_ Fines paid: Rs.1, 000
_ Interest on bank loan: Rs.200
_ Income Tax: Rs.40, 000 [Note. indicates paid by cheque]
You are required to write up the accounts in the integral ledger and make out a trial balance. The
Administration overhead is written off to the Profit and Loss A/c

Solution:
Dr.
Dat

Integral Ledger of X Co. Ltd.


Stores Control Account

Particulars

J.F Amount
Rs.

Date Particulars

e
Jan

To Balance B/d

36, 000

1
Dec

Dec.

Cr.
J.F Amount
Rs.
.

By work-in-progress

2, 20,000

By Production
Overheads

4, 000

By Balance c/d

12, 000

Total

2, 36,000

31
To Creditors Control
A/c

2, 00, 000

. 31

Dec.
31
Dec.
31

Total

2, 36, 000

Dr.

Wages Control A/c

Date Particulars

Dec.

L.F.

To Bank A/c

Amount
Rs.

Date Particulars

1, 84,000

Dec.

31

31
Total

Dr

1, 84,000

To Wages Control
A/c

L.F.

1, 74,000

By Production
Overhead Control
A/c

10, 000

Total

1, 84,000

Amount Date Particulars


Rs.
10, 000

31

Dec.

Cr.
L.F.

Amount
Rs.

By Prepayments A/c
-Rent

600

By Work-in-progress
A/c

96, 000

Total

96, 600

31
To Stores Control
A/c

4, 000

31
Dec.

By work in progress
a/c

Production Overhead Control A/c

Date Particulars

Dec.

L.F. Amount
Rs.

31
Dec.

Dec.

Cr.

Dec.
31

To Bank A/c

80, 000

To Depreciation
Provision A/c

2, 600

Total

96, 600

31
Dec.
31

Dr.

Administration Overheads A/c

Date

Particulars

Dec.

To Bank A/c

L.F.

Amount
Rs.

Date Particulars

24, 000

Dec.

31

Cr.
L.F. Amount
Rs.

By Costing Profit &


Loss A/c

24, 000

Total

24, 000

31
Total

24, 000

Dr.

Selling and Distribution Overhead A/c

Date

Particulars

Dec.

To Bank A/c

L.F.

Amount
Rs.

Date

Particulars

28, 000

Dec.

By Cost of Sales

31

A/c

31
Total

Dr.
Date

28, 000

Cr.
L.F.

28, 000

Total

28, 000

Work- in- Progress A/c


Particulars

L.F.

Jan 1 To Balance b/d

Amount
Rs.

Date Particulars

34, 000

Dec.

Amount
Rs.

Cr.
L.F. Amount
Rs.

By Finished Goods
A/c

4, 30,000

By Balance c/d

94, 000

Total

5, 24,000

Finished Goods Account

Cr.

31
Dec.

To Wages Control
A/c

1, 74,000

To Stores Control
A/c

2, 20,000

To Production
Overhead A/c

96, 000

31
Dec.
31
Dec.
31

31
Total

5, 24,000

Jan 1 To Balance b/d


Dr.
Date

Dec.

Particulars

Jan 1 To Balance c/d

94, 000

L.F.

Amount
Rs.

Date

Particulars

L.F.

Amount
Rs.

26, 000

Dec.

By Cost of Sales A/c

4, 40,000

By Balance c/d

16, 000

Total

4, 56,000

31
Jan 1 To Work in progress
A/c

4, 30,000

Dec.
31

Total

4, 56,000

Dr.

Cost of Sales A/c

Date

Particulars

Dec.
31

To Finished Goods
A/c

Dec.
31

To Selling &
Distribution
Overheads A/c
Total

J.F. Amount Date


Rs.
4,40,000 Dec.31

Particulars
By Costing
Prot & Loss
A/c

Cr.
J.F.

Amount
Rs.
4, 68,000

28, 000

4, 68,000

Total

4, 68, 000

Dr. Costing Profit & Loss A/c for the year ended 31st December 2007 Cr.
Particulars
To Cost of Sales A/c
To Administration
Overheads A/c
To Prot & Loss A/c
Total

Amount Rs.

Particulars

4, 68, 000
24, 000

By Debtors Control A/c

Amount
Rs.
6, 00,000

Total

6, 00,000

1, 08, 000
6, 00, 000

Dr. Profit & Loss A/c for the year ended 31st December 2007 Cr.

Particulars

Amount Rs.

Particulars

Amount
Rs
64, 000

To Charitable
donation
To Fines

2, 000

By Balance b/d

1, 000

By Costing Prot &


Loss A/c

1, 08,000

To Interest on bank
loan
To Income tax
To Net Prot for the
year
Total

200

Total

1, 72,000

40, 000
1, 28, 800
1, 72, 000

Dr.

Prepayment A/c

Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount


Rs.
Rs.
Dec. To
600 Dec. By Balance
600
31
Production
31
c/d
Overhead
a/c
Total
600
Total
600
Dr.

Depreciation Provision A/c

Date Particulars
Dec.
31

To Balance
c/d

Total

Dr.

Jan.
1
Dec.
31

J. Amount
F. Rs.
10, 000
2, 600
12, 600

J.F. Amount Date


Rs.

Particulars

Cr.

J.F. Amount
Rs.

To Bank

2, 02,000

Jan. 1

By Balance
b/d

16, 000

To Balance
c/d
Total

14, 000

Dec.
31

By Stores
Control a/c

2, 00,000

Total

2, 16,000

Dr.
Date

Amount Date Particulars


Rs.
12, 600
Jan. By Balance b/d
1
Dec. By Production
31
Overhead a/c
12, 600
Total

Creditors Control A/c

Date Particulars
Dec.
31
Dec.
31

J.F.

Cr

2, 16,000

Debtors Control A/c


Particular
s
To
Balance
b/d
To Cost of
Sales A/c
Total

Cr.

J.F. Amount Date


Particulars J.F. Amount
Rs.
Rs.
24, 000
Dec.31 By Bank
5, 80,000
A/c
6, 00,000 Dec.31 By Balance
c/d
6, 24,000
Total

44, 000
6, 24,000

Dr.

Bank Account

Date

To Balance b/d

Jan. 1

To Debtors
Control
A/c

J.F.

Dec.
31

Cr.

Amount Date Particulars


Rs.
20, 000
Dec. By Wages
31
Control A/c
5, 80,000 Dec.
31
Dec.
31
Dec.
31
Dec.
31

Dec.
31
Dec.
31
Dec.
31
Dec.
31

J.F. S
1,84,000

By Fixed asset
A/c
By Production
overheads A/c
By
Administration
overhead A/c
By Selling &
distribution
overhead
A/c
By Creditors
control
A/c

4, 000

By Fines

1, 000

By Charitable

2, 000

donation
By Interest on
bank

200

80, 000
24, 000

28, 000

2, 02, 000

loan
Dec.
31
Dec.
31
Total

Dr.

40, 000

By Balance c/d

34, 800

Total

6, 00, 000

Fixed Assets A/c

Date

Particulars

Jan. 1
Dec.
31

6, 00,000

By Income tax

J.F.

Cr.

To Balance
b/d
To Bank A/c

Amount Date
Rs.
1, 10,000 Dec.
31
4, 000

Particulars J.F. Amount


Rs.
By Balance
1, 14,000
c/d

Total

1, 14,000

Total

1, 14,000

Dr.

Share Capital A/c

Date

Particulars

Dec.
31

To Balance
c/d
Total

J.F.

Amount Date
Rs.
1, 60,000 Jan. 1
1, 60,000

Cr.

Particulars J.F. Amount


Rs.
By Balance
1, 60,000
b/d
Total
1, 60,000

Trial Balance

Particulars
Stores Control A/c
Work-in-progress A/c
Finished goods A/c
Cash at bank
Creditors control A/c
Fixed assets A/c
Debtors control A/c
Share capital A/c
Depreciation provision A/c
Prepayments A/c

Debit
Rs.
12, 000
94, 000
16, 000
34, 800

14, 000
1, 14, 000
44, 000
1, 60, 000
12, 600
600

Prot and Loss A/c

Total

Credit
Rs.

1, 28, 800

3, 15, 400

3, 15, 400

NON-INTEGRAL OR COST LEDGER ACCOUNTING SYSTEM

INTRODUCTION
Just as financial accounting system is maintained with certain objectives in view, cost
accounting system is often distinctively maintained with a view to achieve its objectives. All
transactions are collected from the same invoices, vouchers or receipts which are also common
for financial accounts. Costs are then classified according to functions, departments or
products.
Though real accounts and nominal accounts are of direct relevance in ascertaining the cost
of products, personal accounts and cash or bank account are not directly related to cost
ascertainment. When cost accounting system is maintained it involves maintenance of certain
books, for recording day-to-day transactions. It is not necessary to maintain cost accounting
under double-entry system of book-keeping. However, in order to ensure arithmetical accuracy
of data often the principles of double entry system of book-keeping is followed. Under double
entry system cost accounts are maintained in the main ledger which is termed as cost ledger.
In addition to this, many subsidiary ledgers are also maintained. In the cost ledger, control
Accounts are maintained pertaining to each subsidiary ledger. In addition to control accounts,
two other accounts, viz, cost of sales account and costing profit and loss account are also
Maintained in the cost ledger, in order to match cost with revenue. Apart from these accounts,
a general ledger adjustment account is opened in cost ledger to accommodate entries relating
to transactions adjustable against cash, bank, debtors, creditors etc. Entries in the accounts
are made once in each accounting period on the basis of periodical totals of transactions
Contained in subsidiary ledgers.

INTERLOCKING SYSTEM

There two systems of maintaining cost records, viz, interlocking system and integral accounting
system. Under interlocking system, cost records are maintained in a separate set of books
independent of financial accounting. The ICMA terminology defines interlocking system of
accounting as a system in which the cost accounting are distinct from the financial accounting.
The two sets of accounts being kept continuously in agreement or readily recognizable.
The following are some of the advantages of interlocking accounting system:
1. When separate set of costing books are maintained it facilitates ready accomplishment
of its objectives.
2. It avoids the complications of recording the entries if it is integrated with financial
accounting.
3. It can be maintained according to convenience as it need not be statutorily maintained.
The following are some of the limitations of this accounting system:
1. When cost accounting is independently maintained, it amounts to duplication of expenses
along with financial accounting.
2. The profit shown by cost books may vary with that shown by financial accounting.
This requires reconciliation which involves time and effort.

ENTRIES TO RECORD TRANSACTIONS


UNDER INTERLOCKING SYSTEM
1. Materials
(a) Purchase of materials for stock (cash or credit basis):
Stores ledger control a/c Dr.
To General Ledger adjustment a/c
(b) Returns to suppliers:
General ledger adjustment a/c Dr.
To stores ledger control a/c
(c) Materials purchased specifically for a job (i.e., direct issue)
Work-in-progress control a/c Dr.
To General ledger adjustment a/c
(d) Direct material issued from stores to Job:
Work-in-progress control a/c Dr.
To stores ledger control a/c
(e) Materials returned from jobs to stores:
Stores ledger control a/c Dr.
To work-in-progress a/c
(f ) Issue of indirect materials:
Factory overhead control a/c Dr.
To stores ledger control a/c
(g) Transfer of materials from one job to another:
Receiving job a/c Dr.
To giving job

(h) Normal wastage of materials and stores:


Factory overhead control a/c Dr.
To stores ledger control a/c
(i) Abnormal wastage of materials:
Costing P & L a/c Dr.
To stores ledger control a/c
(j) Abnormal gain of materials: Dr.
Stores ledger control a/c
To costing P & L a/c

2. Labour
(a) Payment of direct wages:
Wages control a/c Dr.
To General Ledger adjustment a/c
(b) Allocation of direct labour:
Work-in-progress a/c Dr.
To wage control a/c
(c) Payment of indirect labour cost:
Wage control a/c Dr.
To General ledger adjustment a/c
(d) Allocation of indirect labour cost:
Overhead control a/c Dr.
To wage control a/c
(e) Normal idle time cost:
Factory overhead control a/c Dr.
To wage control a/c

(f) Abnormal idle time cost:


Costing P & L a/c Dr.
To wage control a/c

3. Direct Expenses
Work-in-progress control a/c Dr.
To General ledger adjustment a/c

4. Overheads
(a) For recording overhead incurred and accrued:
Factory control a/c Dr.
Administration control a/c Dr.
S & D control a/c Dr.
To General ledger adjustment a/c
(b) Allocation of factory overheads:
Work-in-progress control a/c Dr.
To factory overhead control a/c
(c) Absorption of administration overhead
Finished stock ledger control a/c Dr.
To administration overhead control a/c
(d) Absorption of selling and distribution overhead:
Cost of sales a/c Dr.
To S & D overhead control a/c
(e) If under/over absorbed amounts are carried forward to subsequent year, the balance
of each overhead a/c will have to be transferred to respective overhead suspense (or
reserve) account as follows

(i) Production overhead a/c Dr.


To production overhead suspense a/c
(For over recovery)
(ii) Administration overhead suspense a/c Dr.
To Administration overhead a/c
(For under recovery)
(iii)Selling and distribution overhead suspense a/c Dr.
To S & D overhead a/c
(For under recovery)
(f) In case of under/over absorbed overheads are transferred to costing P & L a/c then
the relevant entries will be as follows:
(i) For over recovery:
Overhead control a/c Dr.
To costing P & L a/c
(ii) For under recovery:
Costing P & L a/c Dr.
To overhead control a/c

5. Finished Goods or Completed Jobs


(a) Transfer of completed jobs or finished goods produced to finished goods ledger:
Finished stock ledger control a/c Dr.
To work-in-progress control a/c
(b) Transfer of finished goods sold:
Cost of sales a/c Dr.
To finished stock ledger control a/c

(c) Transfer of cost of sales a/c to P & L a/c:


Costing P & L a/c Dr.
To cost of sales a/c
(d) To record sales:
General ledger adjustment a/c Dr.
To costing P & L a/c

6. Transfer of Profit or Loss


(a) In case of profit:
Costing P & L a/c Dr.
To General ledger adjustment a/c
(b) In case of loss:
General ledger adjustment a/c Dr.
To costing P & L a/c

LEDGERS MAINTAINED UNDER COST ACCOUNTING SYSTEM


Under cost accounting system the following ledgers are maintained:

1. Cost Ledger
It is the main ledger maintained in the cost department. It contains two accounts, viz
(a) control account for each of the subsidiary ledgers. Some of the control accounts maintained
in this ledger are stores ledger control account, work-in-progress ledger control account, etc.
(b) cost ledger control account to make the cost ledger self balancing.

2. Stores Ledger
All transactions relating to materials are found in this ledger. It contains a separate account
for each item of stores such as raw materials, component parts, indirect materials. The
concerned material account is debited with materials received and credited with materials

issued. The entries in each account is made from the invoice, materials received note, material
requisition note, etc. The balance in this account represent the cost of unused materials.

3. Work-in-Progress Ledger
This is also known as job ledger. It contains a separate account for each job or work-inprogress.
The elements of cost is debited to this account and is credited with the amount of
finished goods completed and transferred. The balance in this account represent cost of
incomplete job.

4. Finished Goods Ledger


This ledger contains a separate account for each item of finished product or completed job.
This account is debited with the cost of finished product and the amount of administration
overhead absorbed and credited with the cost of goods sold. The balance in this account
shows the closing stock of finished goods in terms of value.

Control Accounts
Under interlocking system, control accounts are maintained in the cost ledger to complete
double entry in cost books. These control accounts are nothing but total accounts or adjustment
accounts summarising mass of information contained in the subsidiary ledgers, i.e., stores
ledger, job ledger and finished stock ledger.
A control account is maintained in the cost ledger so that double entry in the cost ledger
may be completed and make it self-balancing. These control accounts are posted with the
totals of items which have been debited or credited in detail to the accounts in the ledgers
to which they relate. The balance in control accounts represents the total of balances in a
number of accounts of similar nature maintained in that subsidiary ledger to which the
control account relates. For example, the balance in stores ledger control account represents
in aggregate the detailed balances of stores accounts.

In addition to these control accounts for each of the subsidiary ledger, a cost ledger
control account is also kept in cost ledger. This is operated to make the cost ledger self
balancing.

Advantages
1. It provides a check for ensuring that all expenditure is accounted for in cost accounts
with the help of control account.
2. It provides a basis for reconciliation with the financial accounts.
3. It provides a ready means of preparing monthly or periodical balance sheet, profit and
loss account and statistics relating to cost.

IMPORTANT CONTROL ACCOUNTS MAINTAINED


UNDER INTERLOCKING SYSTEM

The various control accounts under interlocking system are as follows:

1. Stores Ledger Control Account


This account is maintained in cost ledger. This records a summary of the value of stores
received, issued and balances on hand. Receipts are posted from materials received notes to
the debit side of this account. Similarly, issue of materials from material requisition or
material abstract is posted to the credit side of the account. Thus for each entry in stores
ledger, there is a corresponding debit or credit, (though in total) in this account. The balance
of this account represents the total balance of stock which should agree with the aggregate
of the balances of individual accounts in the stores ledger.

2. Wages Control Account


This account records labour transactions in aggregate i.e., direct and indirect wages. This
account is debited with gross wages shown in wages analysis sheet. It is closed by transfer

of direct labour to work-in-progress and indirect labour to overhead, i.e., production


administration or selling and distribution overhead account; as the case may be. Wages paid
for abnormal idle time are transferred to costing profit and loss account.

3. Factory Overhead Control Account


This account records factory overhead expenses in aggregate. It is debited with the amount
of indirect materials, indirect labour and indirect expenses as available from indirect materials
analysis sheet, wages analysis sheet etc. This account is credited with the amount of overheads
recovered. The balance in the control account represents under or over-absorption which is
transferred to overhead adjustment.

4. Administration Overheads Control Account


This account is debited with the administrative overheads incurred and credited with the
amount of administrative overhead absorbed by finished goods. Any balance in this account
represent under or over-absorption of administrative overhead which is transferred to overhead
adjustment account.

5. Selling and Distribution Overhead Control Account


This account is debited with the amount of selling and distribution overhead incurred and
credited by the amount of such overheads absorbed by the cost of sales. Balance in this
account represents under or over-absorption of selling and distribution overhead which is
transferred to overhead adjustment.

6. Overhead Adjustment Account


This account is debited with under-absorbed overheads and credited with over-absorbed
overhead
amount. The net balance in this account is transferred to costing profit and loss account.

7. Work-in-Progress Control Account


This account represents the total work-in-progress at any time. This account is debited with
the totals of materials, wages and overheads as transferred from the respective control
accounts. This account is credited when a job is completed. Thus, this account shows the total
value of unfinished jobs.

8. Stock Ledger Control Account


This account contains the summary of all finished goods transactions in total. It is debited
with the cost of finished goods transferred from work-in-progress control account and the
amount of administration overhead absorbed which is transferred from Administration
overhead control account. This account is credited with the total cost of goods sold which is
transferred to the cost of sales account.

9. Cost of Sales Account


This account is debited with the cost of goods sold by transfer from finished goods ledger
control account and also by the selling and distribution overhead absorbed. It is closed by
transferring its balance to costing profit and loss account.

10. Costing Profit and Loss Account


This account reveals the result of the business i.e., profit or loss of the business. This account
is debited with the cost of sales, abnormal losses and under-absorbed overhead and credited
with the sales value, abnormal gain and over-absorbed overhead. The balance in this account
represents profit and loss which is transferred to cost ledger control account.

11. Cost Ledger Control Account or General Ledger Adjustment Account


This account is also known as financial ledger control account. This account is maintained
to make the cost ledger self-balancing. Cost ledger contains only impersonal accounts. As no

personal accounts are kept and in order to complete double entry, it becomes necessary to
debit or credit all the transactions which arise in financial accounts to cost ledger control
account. In fact, the account represents the personal accounts shown in the financial ledger.
For example, wages are paid to the extent of Rs. 5,000, as no cash or bank account is
maintained in cost ledger, therefore, in order to complete double entry, wages account will
be debited and in place of Bank or cash account. General Ledger Adjustment account in the
cost ledger will be credited. Thus, all the financial transactions on account of material
purchases, wages, salaries and miscellaneous expenses are credited to cost ledger control
account by contra debit to various control accounts. In a similar way all the financial receipts
are debited to this account. Any transfer from cost books to financial books, e.g., cost of
capital, work done in the factory, will also be entered in this account.
The main object of this account is to complete double entry in cost accounting. Therefore,
purely cost accounting transactions say transfer entries with no relations to the finances are
not passed through this account as double entry is already complete. The balance in this
account represents the total of the balances of all personal accounts in the financial ledger.

Problem 1.
The following figures have been ascertained from the costing records. You are
required to pass the necessary entries in the cost journal. Assume that a system of maintaining control
accounts prevails in the organisation.

Rs.

(1) Purchases

3,90,000

(2) Carriage inwards

5,850

(3) Stores issued

3,58,800

(4) Productive wages

3,46,320

(5) Unproductive wages

1,21,680

(6) Works on cost

3,48,400

(7) Materials used in repairs

3,120

(8) Cost of completed jobs

12,80,630

Solution:
COST JOURNAL
(1) Stores ledger control a/c

Dr. 3,90,000

To general ledger adj. a/c

3,90,000

(Being the entry for purchase of materials)


(2) Stores ledger control a/c

Dr. 5,850

To general ledger adj. a/c

5,850

(Being carriage inward treated as part of the


cost of materials purchased)
(3) Work-in-progress ledger control a/c

Dr. 3,58,800

To stores ledger control a/c

3,58,800

(Being stores issued to production)


(4) Wages control a/c

Dr. 3,46,320

To general ledger adj. a/c

3,46,320

(Being payment of wages)


(5) Factory overhead control a/c

Dr. 1,21,680

To cost ledger control a/c

1,21,680

(Being indirect wages incurred)


(6) Factory overhead control a/c

Dr. 3,48,400

To cost ledger control a/c

3,48,400

(Being works overhead other than indirect wages)


(7) Factory overhead control a/c

Dr. 3,120

To stores ledger control a/c

3,120

(Being materials used in repairs)


(8) Finished stock ledger control a/c
To work-in-progress ledger control a/c
(Being completed production transferred to finished stock)

Dr. 12,80,630
12,80,630

Problem 2.
The following transactions pertaining to materials took place during March 2001 in
ABC Company Ltd. Enter the transactions in the cost books.
(1) Materials purchased
Credit purchases

10,000

Cash purchases

8,000

Credit purchases for job no. 20

1,000

(2) Return to suppliers

500

(3) Direct materials issued to jobs

4,000

(4) Indirect materials issued to jobs

400

(5) Materials returned from jobs to stores

200

(6) Materials transferred from job no. 8 to job no. 12

300

Solution:
COST JOURNAL

(1) (a) Stores ledger control a/c

Dr. 10,000

To general ledger adj. a/c

10,000

(Being the amount of credit purchases)


(b) Stores ledger control a/c

Dr. 8,000

To general ledger adj. a/c

8,000

(Being cash purchases)


(c) Work-in-progress ledger control a/c
To general ledger adj. a/c
(Being purchases for a special job no. 20)

Dr. 1,000
1,000

(2) General ledger adj. a/c

Dr. 500

To stores ledger control a/c

500

(Being the return to supplier)


(3) Work-in-progress ledger control a/c

Dr. 4,000

To stores ledger control a/c

4,000

(Being the direct materials issued to jobs)


(4) Factory overhead control a/c

Dr. 400

To stores overhead control a/c

400

(Being issue of indirect materials)


(5) Stores ledger control a/c

Dr. 200

To work-in-progress control a/c

200

(Being the materials returned from jobs to stores)


(6) Job no. 12 a/c

Dr. 300

To job no. 8 a/c

300

(Being the transfer of materials from job no. 8 to job no. 12)

Problem 3.
Pass Journal entries in the cost books (non-integrated system) for the following
transactions:

(1) Materials worth Rs. 25,000 returned to stores from job.


(2) Gross total wages paid Rs. 48,000. Employers contribution to PF and state insurance amount to Rs.
2,000. Wages analysis book detailed Rs. 20,000 direct labour, Rs. 12,000 towards indirect factory labour,
Rs. 10,000 towards salaries to office staff and Rs. 8,000 for salaries to selling and distribution staff.
(University of Delhi, B.Com. (Hons.), April 1999)

Solution:

JOURNAL ENTRIES
(i) Stores ledger control a/c

Dr. 25,000

To work-in-progress a/c

25,000

(Being raw materials returned to stores)


(ii) Wages control a/c

Dr. 50,000

To general ledger control a/c

50,000

(Being payment of wages)


Work-in-progress control a/c

Dr. 20,000

Factory overhead a/c

Dr. 12,000

Office overhead a/c

Dr. 10,000

Selling overhead a/c

Dr. 8,000

To wages control a/c


(Allocation of wages to direct and indirect cost)

50,000

BIBLIOGRAPHY

Anda mungkin juga menyukai