1 a Cost Recods

8/8/2019 1 a Cost Recods

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1

WELCOME TO THE PROGRAM ON COST

ACCOUNTING & RECORD RULES

BY

T.VENKATARAMANAN.FICWA.FCS


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COST ACCOUNTANCY FORCOMMERCIAL AUDITBY

T.VENKATARAMANAN

FICWA.FCS


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MODULE I. CONTENTS3

FINANCIAL ACCOUNTING & COST ACCOUNTING

Are they competing , or rivals or supplementary

BOOKS OF ACCOUNTS IN COST ACCOUNTING

The two systems

COST ACCOUNTING RULES & RECORDS

Define and confine the area of cost accounting

RECONCILIATION OF COST &FINANCIALACCOUNTS

Reconcile the figures and not the auditors


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MODULE I. CONTENTS4


Are they competing , or rivals or supplementary

A SCRUTINY:

OBJECTIVE: Financial accounts is conduit of information tothe outside world , various stake holders of the business,what has happened & where we are

What was my expectation- where I stand now?

What is my Risk? Cost accounting has Nothing to do with the outside world .

cost accounts Only aids the management by telling why ithas happened could it be better ? Rather how to improve?


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MODULE I. CONTENTS5


A SCRUTINY:

financial accounts is concerned with transactions of monetary value

Cost accounting with consumption value .

Financial account with revenue and expenditure Cost accounts with value addition

Financial account considers , the whole of the business superficially.

cost accounts is an in- depth analysis , both quantity & values

Last but not least F.A/C is a legal compliance, cost accounts is amanagerial necessity. There are 101 points to show that cost a/c isnot a competitor but a supplementar .(Dont search for this word inthe dictionary, it is my own)


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The cost accounting system7

cost accounting is concerned with internal reporting Itaims at providing information for planning ,control anddecision making . It is essentially utilization accounting.

In cost accounts cost books are basically maintainedunder 2 systems a) nonintegrated system 2)integratedsystem

In non integrated system, cost control accounts are keptin addition to financial books, separately.

In this system, personal accounts , assets, liabilities cashand bank books are not maintained. Only nominalaccounts are maintained.


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The principal books of accounts in cost

accounting system.8

Are

1)general ledger adjustment a/c

2)stores ledger control account

3)WIP ledger control a/c

4)finished goods ledger control account

5)wages control a/c

6)Production overhead account 7)Administration overhead account

8)Selling& distribution overhead a/c


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MODULE I. CONTENTS9

9)cost of sales a/c

10)costing profit and loss a/c

11) overhead suspense a/c 12)capital orders a/c

13)service orders a/c

A detailed working of the system is provided at

P/198 -208 of the hand outs.

A few specimen transactions are discussed here.


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Illustrative transactions10

1)Purchase of material:

For Rs 58300/= on credit

Financial accounts: Purchases a/c dr. Rs 58300

To S.Cr Rs 58300

When separate books are maintained In cost

accounts:

Material control a/c Dr Rs 58,300/

To general Ledger Adjustment a/c Rs 58300


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1)Issue of material:

For Rs 18300/= to Production/Jobno101/

Maintenance department

Financial accounts:

No entry


accounts:

WIP control a/c Dr Rs 18,300/

To Material control a/c Rs 18300


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Financial accounts:

No entry

When separate books are maintained Incost

accounts:

Job no 101 a/c Dr Rs 18,300/



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Financial accounts:

No entry


accounts:

Production OH control a/c Dr Rs 18,300/



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1)closing stock Rs 40,000/=

Financial accounts:

Physical verification and valuation is done and taken to

P & L a/c

When separate books are maintained In cost accounts:

Material control a/c balance @cost Rs 40,000

Is taken In self balancing systems cost ledger control a/c s are

introduced in financial accounts and memorandum

entries are passed for the transactions.


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WAGES

Paid Rs 50,000/=

Financial accounts:

Wages a/c Dr Rs 50,000/= To, I.T .recd Rs 5000/

To P.F.RECD 5000

cash/bank Rs 40,000

when separate books are maintained In cost accounts: Wages control a/c Dr. Rs 50,000

To General Ledger adjt a/c Rs 50,000/

Note: only Gross amount is considered in cost accounts


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WAGES

Paid Rs 50,000/=

On analysis

No Entry in financial a/c s In cost accounts:

WIP control a/c Rs 40,000

FOH control a/c Rs 6000

AOH control a/c Rs 4000 To Wages control a/c Dr. Rs 50,000

In job order factory WIP consists of Job orders

In process industry it is process a/c s


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Other expenses

Paid Rs 30,000/=

In financial a/c

Sundry Expenses a/c Dr Rs 30,000/=

To cash/bank a/c Rs 30,000 On analysis

No Entry in financial a/c s

In cost accounts:

WIP control a/c Rs 20,000

FOH control a/c Rs 6000

AOH control a/c Rs 4000

To Wages control a/c Dr. Rs 30,000

In job order factory WIP consists of Job orders

In process industry it is process a/c s


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When payments are made to suppliers :

In financial a/c s

Sundry Crs a/c Dr Rs 58300/= To cash/ bank Rs 58300/=

In cost accounts No Entry.

For allocation ,absorption and recovery no entries

are passed in Financial accounts.


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Interlocking of accounts19

In the system explained above , the cost account sectionis maintaining separate set of accounts . They arerequire to be interlocked with financial accounts so thatperiodical reconciliation is possible.

In this system variation of profit or loss occurs due to thefollowing reasons:

1)Items considered in fin a/c s only

2)items considered in cost accounts only 3)Different bases for stock valuation & provision for

depreciation

4)Under absorption /over absorption of OHS


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Interlocking of accounts-

Purely costing items21

1)Items considered in cost a/c s only:

Notional interest , notional rent , notionaldepreciation on fully depreciated assets .

Notional salary of owner etc Taking into consideration the above aspects a

statement of reconciliation is prepared.

Alternatively a memorandum reconciliation a/c isprepared

An illustration is provided in page 204 of the handout


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Integrated accounting System22

In the present days , computerization has facilitated

Integration of both cost & financial accounts ,

eliminating the need for reconciliation.

All control a/c s are maintained in the general

ledger.

An illustration at page 218 explains the operation

of the integrated system of accounting.


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A small illustration on Reconciliation23

In a factory works overhead is absorbed at 60%

of labor and office expenses @20% of works cost.

Sales 5,30,000. 10% of production in

stock

The total expenditure is as follows:

MATERIAL Rs 200552

WAGES 149448

FACTORY EXP 98000

OFFICE EXP 85000

533000


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A small illustration on Reconciliation24

MATERIAL Rs

200552

sales 510000

WAGES

149

448

Cl stock 53,300

FACTORY

EXP 98000

OFFICE EXP

85000

533000

net profit 30 300

Total 563300 563300


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Cost sheet25

MATERIA

L

200552 Sales 510000

LAB 149448 Cop 527603

P.C 350000 Cl stock -52760 474843

WOH 60%of L 89669

Works

cost

439669 Profit as

per

Cost

a/cs

35157

0ffice

expense

s

20% of

Wc

87934

Cost of

produc

527603


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Reconciliation

Profit as per

cost accounts

Rs 35157

Add under

valuation

Of closing

stock

540

Over

absorbtion

Off.expenses

2934

3474

38631

Lessunder

absorbtion ofw.oh.

8331

Profit as per Financial a/c 30300


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THANK YOU

1 a Cost Recods

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