Reconciliation of Cost & Financial Records

Reconciliation of Cost & Financial Records

Financial Accounts. Introduction: Financial accounts are the records of the financial dealings of the business, their every day transactions. The main role of financial accounting is to : a) Record financial transactions like collecting money from sales, paying suppliers, salaries and wages

b) Help the managers to manage the business e.g. monthly accounts showing sales, cost and profit against budgets, Forecasting cash flows, cost investigations. c) Provide other stakeholders with legal/vital information (financial accounts: trading account, profit and loss, balance sheet)

Financial Statements Financial statements divided in 5 parts: a) Manufacturing Account: Statement used in accounting process of a manufacturing organization. This financial statement does not show profit and loss figures but rather the cost of direct materials and labour. A manufacturing account also includes production overhead. b) Trading account: An account with a broker that enables an individual or other party to buy and sell securities.

c) Profit & Loss Account: A statement shows the position of Profit or Loss made by the organization. d) Profit & Loss Appropriation: The Profit & Loss appropriation account should be treated as a separate account from the Profit & Loss account. The appropriation account is designated to provide an indication of how profit transferred from the Profit & Loss account is spent. e) Balance sheet: A Statement that shows the financial position of an entity on a specified date (usually the last day of an accounting period.)

Cost accounts Introduction: It is the cost application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of Profitability.

Performa of Cost Sheet Particulars Total Cost Rs. Cost Per unit Rs. Opening stock of Raw materials ADD: Purchases ADD: Carriage Inward ADD: Octroi & Custom Duty Less: Closing stock of raw materials Cost of Direct materials consumed Direct wages Direct or chargeable expenses PRIME COST

Particulars Total Cost Rs. Cost Per unit Rs. ADD: WORKS or Factory Overheads Indirect Materials Indirect wages Leave wages Bonus to workers Overtime wages Fuel & Power Rent & Taxes Insurance Works salary Depreciation of Plant & Machinery

factory Lightings Supervision Works stationery Canteen & Welfare Expenses Repairs

Particulars Total Cost Rs. Cost Per unit Rs. Subscription to trade Journals Office Lightings Establishment Charges Directors Travelling expenses Consultants Fees Contribution to Provident fund Postage

Legal charges Audit fees Bank charges Depreciation & Repairs of Office Equipment Bonus to Staff COST OF PRODUCTION ADD: Opening stock of Finished goods Less: Closing stock of Finished goods COST OF GOODS SOLD

Particulars Total Cost Rs. Cost Per unit Rs. ADD : Selling & Distribution Overheads: Advertising Show Room Expenses Sales man salary & Expenses Packing expenses Carriage outward Commission of sales agent

Cost of Catalogues Expenses of Delivery vans Collection charges Travelling expenses Cost tender Warehouse expenses Cost of mailing literature Sales manager salary Insurance of Show room

Works expenses Particulars Total Cost Rs. Cost Per unit Rs. Xxx Gas & Water Technical Director s Fees Laboratory Expenses Works Transport Expenses Works telephone Expenses Xxx

ADD: Opening stock of Work in progress Less: Closing stock of Work in progress Less: Sale of Waste WORKS COST ADD: Office & Administration Overheads: Office salaries Director s fees Office Rent & Rates Sundry Office Expenses Depreciation on Office Furniture

Sales Director s fees Particulars Total Cost Rs. Cost Per unit Rs. Sales office expenses Rent of sales office Depreciation of Delivery vans Expenses of sales branch Establishments Branch office expenses TOTAL COST / TOTAL OF SALES Profit or Loss SALES

Note: 1)Cost per unit can be calculated as follows: Till Cost of production units produced Opening stock of finished goods Given Closing stock of finished goods CPU of COP (as per AS 3 Works cost) After closing stock of finished goods till end units sold.

Following Items are to be ignored in the cost sheet a) Advance tax paid b) Cash discount allowed on sales c) Dividend paid d) Dividend received e) Debenture interest f) Donation paid g) Interest received h) Interests paid on Loan i) Income tax paid j) Interests paid on Bank overdraft

k) Income tax refund l) Interest on capital m) Bad debts n) Loss on sale of Fixed asset / Investment o) Purchase of Fixed asset / Investment p) Sale of Fixed asset/ Investment q) Profit on sale of Fixed asset /Investment r) Non operating income such as discount received

Reconciliation Meaning: An accounting process used to compare two sets of records to ensure the figures are in agreement and are accurate. Reconciliation is the key process used to determine whether the money leaving an account matches the amount spent, ensuring the true values are balanced at the end of recording period.

Golden Rule for Reconciliation DO WHAT OTHERS HAVE DONE ON PROFIT

Format of Reconciliation Profit as per Cost Account ADD: Profit Reconciliation Statement for the period ended. Particulars Amt Amt LESS: Profit as per Financial Account OR

Profit as per Financial Account ADD: Profit Reconciliation Statement for the period ended -. Particulars Amt Amt LESS: Profit as per Cost Account

Problem :1 Practical Problems.

Solution.