CHAPTER 1

COST ACCOUNTING SYSTEM

INTRODUCTION
Cost accounting is a process of collecting, analyzing, summarizing and evaluating various
alternative courses of action. Its goal is to advise the management on the most appropriate course
of action based on the cost efficiency and capability. Cost accounting provides the detailed cost
information that management needs to control current operations and plan for the future.
Since managers are making decisions only for their own organization, there is no need for the
information to be comparable to similar information from other organizations. Instead,
information must be relevant for a particular environment. Cost accounting information is
commonly used in financial accounting information, but its primary function is for use by
managers to facilitate making decisions.
Unlike the accounting systems that help in the preparation of financial reports periodically, the
cost accounting systems and reports are not subject to rules and standards like the Generally
Accepted Accounting Principles. As a result, there is wide variety in the cost accounting systems
of the different companies and sometimes even in different parts of the same company or
organization. A cost accounting system is a system designed for managers to help them make
decisions and includes; input measurement basis, inventory valuation method, cost accumulation
method and cost flow assumption. The type of costs that come into an inventory may be pure
historical costing or standard costing.

DEFINITION OF COST ACCOUTING SYSTEM

Meaning & Definition Cost- the amount of expenditure (actual or notional) incurred on, or
attributable to a specified thing or activity-CIMA, London Costing-the techniques and
processes of ascertaining cost-CIMA, London
1

Cost Accounting Cost Accounting is the application of accounting and costing principles,
methods and techniques in the ascertainment of costs and the analysis of savings and/or excesses
as compared with previous experience or with standards-CIMA, London
IMPORTANCE OF COST ACCOUNTING
The limitation of financial accounting has made the management to realize the importance of
cost accounting. The importance of cost accounting is as follows:
1. Importance to Management
Cost accounting provides invaluable help to management. It is difficult to indicate where
the work of cost accountant ends and managerial control begins. The advantages are as
follows:

Helps in ascertainment of cost

Cost accounting helps the management in the ascertainment of cost of process,

product, Job, contract, activity, etc., by using different techniques such as Job
costing and Process costing.

Aids in Price fixation

By using demand and supply, activities of competitors, market condition to a great

extent, also determine the price of product and cost to the producer does play an
important role. The producer can take necessary help from his costing records.

Helps in Cost reduction

Cost can be reduced in the long-run when cost reduction program me and
improved methods are tried to reduce costs.

Elimination of wastage
2

As it is possible to know the cost of product at every stage, it becomes possible to

check the forms of waste, such as time and expenses etc., are in the use of
machine equipment and material.

Helps in identifying unprofitable activities

With the help of cost accounting the unprofitable activities are identified, so that
the necessary correct action may be taken.

Helps in checking the accuracy of financial account

Cost accounting helps in checking the accuracy of financial account with the help
of reconciliation of the profit as per financial accounts with the profit as per cost
account.

Helps in fixing selling Prices

It helps the management in fixing selling prices of product by providing detailed

cost information.
2. Importance to Employees
Worker and employees have an interest in which they are employed. An efficient costing
system benefits employees through incentives plan in their enterprise, etc. As a result
both the productivity and earning capacity increases.
3. Cost accounting and creditors
Suppliers, investors financial institution and other moneylenders have a stake in the
success of the business concern and therefore are benefited by installation of an efficient
costing system. They can base their judgment about the profitability and prospects of the
enterprise upon the studies and reports submitted by the cost accountant.
4. Importance to National Economy
3

An efficient costing system benefits national economy by stepping up the government

revenue by achieving higher production. The overall economic developments of a
country take place due to efficiency of production.
5. Data Base for operating policy
Cost Accounting offers a thoroughly analyzed cost data which forms the basis of
formulating policy regarding day to day business.
ADVANTAGES OF COST ACCOUNTING
The science of cost accounting has developed primarily to serve the needs of the management.
The techniques of cost accounting are the best tools by which management may conduct a
business towards profitable operations. It is so much allied to management that it is difficult to
indicate where the cost accounting ends and managerial control begins.
Cost Accounting has many advantages. The following are the most important advantages of a
good cost accounting system:
1.

Profitable and unprofitable Activities:

In Cost Accounting profitable and unprofitable activities are disclosed. Management can take
steps to eliminate or to reduce those activities from which little or no profit is earned. It can
change the method of production in order to render such activities more profitable.
2.

Classification and Subdivision of costs:

Costs are accumulated and classified by every possible division of business. In a good costing
system data regarding costs by functions, departments, processes, jobs or orders, contracts and
services can be easily computed. Thus it helps management to ascertain the profitability of each
product, sales area, division etc. in order to improve profit.

3.

Cost Finding and Price-Fixing:

4

It provides accurate cost data which help in the fixation of selling price and for submitting
quotations. In periods of depression it enables the management to determine the extent to which
prices can be reduced.
4.

Control of Materials and supplies:

Since in all types of cost accounting, materials and supplies must be accounted for in terms of
departments, processes, and units of production or services; a system of receiving, handling, and
issuing materials and supplies is an essential part of cost control. This will eliminate or reduce
misappropriation, embezzlement, obsolescence, and losses from scrap, defective, and spoiled
materials and supplies.
5.

Control of Wages and Salaries:

Cost Accounting activities encourage accounting for labour by jobs and by operations. In many
manufacturing concerns daily summary reports are prepared to show the number of hours and
minutes worked and the wage rate for each worker per job or operation.
Cost Accounting is a benefit to the employer by establishing standards to measure the efficiency
of labour to assist in assignment of work to employees best fitted for it, and to determine the unit
cost of labour arising from each activity.
6.

Overhead costs:

The Cost accountant first separates costs into direct and indirect items. Direct costs consists of
materials and labour that can be definitely.

7.

Helps in adverse periods:

Cost accounting helps in the periods of economic recession, trade depression and trade
competition. In such periods, the management should concentrate on measures to be taken to
minimize loss. While taking decision during such periods, cost accounting extends a helping
hand to the management to resolve crisis.
8.

Price fixation, Floating tenders, Quotations etc.:

Cost records play a vital role in fixing the price of a product, service or process. Cost accounting
facilitates such task.
9.

Eliminates wastages:

Cost of the article or process at each and every stage can be determined with the help of cost
records, thereby minimizing wastages that occur.
10.

Maximizes profit:

Cost accounting helps in maximizing profit, choosing apt approach for its production. Nonprofitable lines may be avoided.
11.

Facilitates comparison:

Cost records provide data to compare different periods, which in turn helps the management to
take future course of action promptly.
12.

Preparation of final accounts:

Cost records provide the necessary accounting information for the preparation of profit and loss
account and balance sheet at specified periods promptly.

13.

Inventory control:
6

Costing helps to a great extent with respect to control of stock of raw materials, work-in-progress
and finished goods.
14.

Increasing productivity:

Productivity of material and lab our is inevitable for any organization to attain growth and
expansion. Costing helps in these areas to increase productivity.
15.

Enhancing efficiency:

As costs are determined at each stage, wastages can be detected and remedial measures can be
taken without delay; efficiency of an organization is enhanced, which in turn maximizes the
profitability.
16.

Boon to creditors:

Costing records serve as a reliable and authentic document by which creditors (investors, banks
and money-lending institutions etc.) can repose faith on business organizations and extend
advances without any hesitation and with confidence.
17.

Beneficial to employees:

Costing records are easily accessible and transparent to employees because of which they are
benefitted monetarily by way of incentive, bonus etc. This strengthens the cordial relationship
between the employer and employee, and industrial peace environment prevails.
18.

Boost to national economy:

Prosperity in industrial sector will reflect in the general economy of any nation by way of
increased revenue to the government. Better system of cost accounting paves the way to achieve
higher GDP growth of the nation.

OBJECTIVES OF COST ACCOUNTING

7

The main objectives of cost accounting are:

1. To determine the cost of a product, process or service
2. To analyze, classify and record all expenditures with respect to the cost of product,
process or service in order to determine its cost
3. To provide necessary information to the management in time
4. To provide data needed for periodical preparation of profit and loss account and balance
sheets
5. To serve as a guide by providing actual data for comparison
6. To facilitate price fixation and offering quotations
7. To assist budgetary control
8. To assist cost control and cost reduction
9. To record the relative production results in each unit of plant to examine efficiency
10. To provide the basis for production planning and for avoiding wastages of materials and
stores
11. To provide data for different periods and various volumes of output for effective planning
and future expansion of business
12. To provide the basis for making decisions such as:
1. To shut down or operate
2. To make or buy
3. To continue with existing plant/machinery or to replace it

4. To determine costvolumeprofit relationship

13. To assist the management in devising suitable policy decisions in other key areas
BASIC DOCUMENT USED IN COST ACCOUNTING
The following documents are used for collecting and classifying various costs:
(1)Material requisition note:
A document which authorizes and records the issue of materials for use.
(2)Material returns note:
A document which records the returns of unused materials.
(3)
Material transfer note:
A document which records the transfer of materials from one store to another, from one
cost centre to another, or from one unit to another.
(4) Material issue analysis sheet:
A document which is a classified record of materials issues, returns and transfers.
(5) Lab our Time Record:
A document which records the amount of time spent by an employee, showing the
analysis between a numbers of activities during a payment period.
(6) Wages analysis Sheet:
A document which is a classified record of time and / or wages complied from lab our
time records.
(7) Expenses analysis Sheet:
A document which classified record of expenses.
(8) Cost journal voucher:
A document which provides the details necessary to support an entry in the cost A/C.
(9) Machine Time Record:
A document which records the amount of time an items of equipment is operated or
remain idle, and the work done by the machine, and which may record the cost of the
time so recorded.

CHAPTER 2
INTEGRATED SYSTEM OF ACCOUNTS
INTRODUCTION
Integrated accounting system involves the combination of cost accounting and financial
accounting records. In this system, only one set of books of accounts are maintained. This set of
books fulfils the principles of cost accounting and financial accounting. In this system, nominal
accounts follow the principles of cost accounting. Real accounts and personal accounts are kept
in accordance with financial accounting principles.
Integrated accounting system may be defined as the inter-locking of financial and cost
accounting systems to ensure that all relevant expenditure is absorbed into the cost accounts.
Under this system, transactions are classified according to both their function and nature. Under
this system, double-entry system of book keeping is followed for recording transactions.
DEFINTION OF INTEGRATED SYSTEM
CIMA has defined integrated system as a system in which the financial and cost accounts are
inter-locked to ensure that all relevant expenditure is absorbed into the cost accounts. Under this
accounting system transactions are classified both according to their function and natures.
FEATURES OF INTEGRATED ACCOUNTING:

Account budget setup capability

Check printing in batch or on demand

Electronic check request feature automatically creates an Accounts Payable record

Recurring journal entries tool

10

Payroll import functionality

Search and view accounts by date range, accounting period or any other aspect

Print or export grid results to Excel

Trial balance, income statement, balance sheet and statement of cash flows capabilities

Trust balances by matter

Ability to transfer monies between trust accounts

Support for multiple checking accounts with different check formats per account

Bank statements can be downloaded for reconciliation

Track and manage vendor and payee relationships

Process 1099 information

Account-split capabilities to automatically distribute a check or adjustment among

multiple accounts

Compensation formulas automate the splitting of fee income postings

Support for matter level, client level or partial payments

Management of unapplied cash

Support for write-offs

Group, sort or filter search results

Period-based analysis
11

ADVANTAGES OF INTEGRAL SYSTEM OF ACCOUNTING

1. Duplication of work avoided:
Keeping unnecessary accounting records is avoided, by which duplication of accounting
work is eliminated to a great extent.
2. Saves time and money:
Instead of cost ledger, control account, general ledger adjustment account, purchases
account and stores ledger account, only one set of books are maintained and thus save
time and money.
3. Reconciliation problem:
As there will be only one figure for profit or loss, the problem of reconciliation of profits,
as shown by cost and financial books, will not arise.
4. Accuracy:
Correct and reliable data can be obtained under this system and as such the results will be
more accurate.
5. Control on cost:
In this system, all expenses are included in cost accounts. It leads to an automatic check
on costs and ensures better control over it.
DISADVANTAGES OF INTEGRATED SYSTEM :
1. This system has to fulfill the requirements of both the cost and the financial accounts.
Because of this, it is a complicated procedure.
2. In any case, perfect integration cannot be possible.
3. This system may not be suitable for large-scale manufacturing factories.
12

PREREQUISITES FOR SUCCESSFUL INTEGRATED SYSTEM OF

ACCOUNTING

1. Role of management:
The role of management is important in the implementation of integrated accounting
system. The management has to plan the level of integration and issue guidelines for
effective implementation of this system.
2. Classification of accounts:
Account heads should be duly identified and classified. The accounting data have to be
maintained in separate subsidiary ledgers as follows (i) sales ledger (ii) purchases ledger
(iii) stores ledger is job ledger (iv) stock ledger (v) overheads ledger and the like.

3. Coding of accounts:
To facilitate the task of relevant and speedy information, proper coding of accounts must
be done.
4. Accounts personnel:
Proper training should be provided to accounts department personnel to acquaint with this
accounting system.
5. Agreed routine
An agreed routine, with regard to the treatment of provision for accruals, prepaid
expenses and other adjustments necessary for preparation of interim accounts must be
specified.

13

ACCOUNTING TREATMENT
Journal entries: The journal entries that have to be passed under both integral and non-integral
accounting systems are shown in the tabular form as follows:

14

Accounting entries in non-integrated accounting system (financial books and cost books) and
integrated accounting system.

15

16

17

SOLVED PROBLEM
18

INTEGRATED SYSTEM
Bangalore petro-chemicals co. keep books on integral accounting system. The following
balances appear in the books company as on 1st January 2004.
Particular

Dr. Rs.
18000
17000
13000
10000

Stores control A/C

Work in progress A/C
Finished goods A/C
Bank A/C
Creditor A/C
Fixed assets A/C
Debtors A/C
Share capital A/C
Depreciation provision A/C
Profit and loss A/C
TOTAL

Cr. Rs.

8000
55000
12000

125000

80000
5000
32000
125000

Transactions for the year ended 31st December, 2004 were as under:
Particular
Rs.
Wages direct
87000
Indirect
5000
Purchase of materials (on credit)
Materials issues to production
Materials for repairs
Goods finished during the year (at cost)
Sales (on credit)
Cost of goods sold
Production overheads absorbed
Production overheads incurred
Administration overheads incurred
Selling overhead incurred
Payments to creditors
Payments from debtors
Depreciation of machinery
Prepaid rent (included in factory overheads)
Write up accounts in the integrated ledger and prepare a trial balance.

Rs.
92000
100000
110000
2000
215000
300000
220000
48000
40000
12000
14000
101000
290000
1300
300

Solution:
Dr.

Stores control A/C

19

Cr.

Particular
To balance b/d
To creditors A/C

Rs.
18000
100000

particular
By WIP A/C
By production overheads
By balance c/d

118000

Dr.
Particular
To bank A/C

Wages control A/C

Rs.
92000

Particular
By WIP A/C
By production overhead A/C

92000

Dr.
Particular
To balance b/d
To stores control A/C
To wages control A/C
To production A/C

Dr.
Particular
To wages control A/C
To stores control A/C
To Bank A/C
To deprecation provision

Dr.
Particular
To balance b/d
To WIP A/C
To administration overhead

Rs.
110000
2000
6000
118000

Cr.
Rs.
87000
5000
92000

Work in progress A/C

Rs.
17000
110000
87000
48000
262000

Particular
By finished goods A/C
By balance c/d

Cr.
Rs.
216000
47000
262000

Production overhead A/C

Rs.
5000
2000
40000
1300
48300

Particular
By WIP A/C
By prepaid rent

Cr.
Rs.
48000
300
48300

Finished goods A/C

Rs.
13000
215000
12000
240000

Particular
By cost of sales A/C
By balance c/d

Cr.
Rs.
220000
20000
240000

20

Dr.

Administrative overhead A/C

Particular
To bank A/C

Rs.
12000
12000

Dr.

Dr.
Particular
To bank A/C

Cr.

Rs.
Particular
220000
By sales A/C
14000
234000
Selling and distribution A/C

Rs.
234000

Rs.
14000
14000

Rs.
14000
14000

Dr.

Particular
By cost of sale A/C

234000
Cr.

Sales A/C

Particular
To cost of sales A/C
To P/L A/C (profit)

Rs.
234000
66000
300000

Dr.

Particular
By debtors A/C

Cr.
Rs.
300000
300000

Prepaid A/C

Particular
To production overhead A/C

Particular
To balance c/d

Rs.
12000
12000

Cost of sales A/C

Particular
To finished goods A/C
To selling & distribution A/C

Dr.

Particular
By finished goods A/C

Cr.

Rs.
300
300

Particular
By balance c/d

Cr.
Rs.
300
300

Depreciation provision A/C

Rs.
6300

Particular
By balance b/d
21

Cr.
Rs.
5000

By production overhead A/C

6300

Dr.
Particular
To balance c/d

Profit and loss A/C

Rs.
98000

Cr.
Particular
By sales A/C
By profit b/d

98000

Dr.

Debtors A/C

Particular
To balance b/d
To sales

Rs.
12000
300000
312000

Dr.

Creditors A/C

Particular
To bank
To balancec/d

Rs.
101000
7000
108000

Dr.

Rs.
66000
32000
98000

Cr.
Particular
By bank A/C
By balance c/d

Particular
By balance b/d
By stores control A/C

Rs.
290000
22000
312000

Cr.
Rs.
8000
100000
108000

Bank A/C

Cr.

Particular
To balance b/d
To debtors

Rs.
10000
290000

Dr.

300000
Fixed assets A/C

Particular
To balance b/d

1300
6300

Rs.
55000
55000

Particular
By creditors
By wages control A/C
By production OH A/C
By adiministration OH A/C
By selling and distribution OH A/C
By balance c/d

Particular
By balance c/d

22

Rs.
101000
92000
40000
12000
14000
41000
300000
Cr.
Rs.
55000
55000

Trial balance as on 31-12-2004

Particular
stores control A/C
WIP A/C
Finished goods A/C
Bank A/C
Creditors A/C
Fixed assets A/C
Debtors A/C
Share capital A/C
Deprection provision A/C
P and L A/C
Prepaid rent A/C

Dr. Rs.
6000
47000
20000
41000

Cr. Rs.

7000
55000
22000
80000
6300
98000
3000
191300

23

191300

CHAPTER 3
NON INTEGRATED SYSTEM OF ACCOUNTS
INTRODUCTION
Meaning of Non-Integrated Accounts CIMA, London defines it as, a system in which the cost
accounts are distinct from the financial accounts, the two sets of accounts being kept
continuously in agreement or readily recognizable Also known as independent system, separate
books system, cost ledger system, interlocking accounting system or traditional system
FEATURES OF NON- INTEGRATED SYSTEM
Features of Non-Integrated System Separate set of books for costing and for financial accounting
for cost accounting, source of information is the same as financial accounting Cost accounts
records only coasts, which are a part of Nominal Accounts For other accounts, cost control
accounts or adjustment accounts are maintained
Books of Accounts Main Ledger: Cost Ledger: contains control accounts and nominal accounts
other than Stores Ledger, WIP Ledger and Finished Goods Ledger Subsidiary Ledgers: Stores
Ledger, WIP Leger and Finished Goods Ledger
Role of general Ledger Adjustment Account Also known as Cost Ledger Control Account or
Finance Ledger Control Account It is the counterbalancing account for the stocks of material,
work-in-progress, and finished goods
1. Separate books
In a non-integrated cost accounting system there are separate cost accounting cost journals and
cost ledgers.
2. Principal of double- entry
However, it too follows the fundamental principles of double entry book-keeping for this
purpose.

24

3. Cost manual
As the number and types of transactions involved in accounting are numerous, a number of
individuals are employed in their recording and analysis. A cost manual is prepared for guidance
of the staff.
4. Voucher
As in the case of financial accounting system, transactions are recorded in the cost journal
voucher, which provides the details necessary to support an entry in the cost accounts.
5. Account/code
Each entry is debited/credited to a cost accounts. CIMA has defined a cost accounts as an
account in the cost ledger. Each account may be given a cost code.
6. Journal
These vouchers are first entered into cost journals. There may be one general journal to
summaries all original entries or separate journals may be kept to record lab our, material and
overhead transactions.
7. Ledger
From the cost journals, entries are posted in the cost ledger. CIMA has defined a cost ledger as
a ledger whose accounts record those transactions which are included in costs. In financial
accounting, ledger may be divided into general and subsidiary ledgers like debtors ledger,
creditors ledger etc.
Similarly, cost ledger may be divided into main and subsidiary ledger. There may be a main
ledger known as cost ledger and other subsidiary ledgers like stores ledger, work in progress
ledger and finished stock ledger.

CONTROL ACCOUNTS
The cost ledger contains two of accounts to complete the double entry :
(a) Cost ledger control A/C
25

(b) Three cost control A/C

(A)Cost ledger control A/C :
CIMA has defined a cost ledger control account as an account which is maintained
in the principal ledger which records the totals of the transactions recorded in detail in
the cost legder and provides a check on the accurancy of the latter. Cost ladger control
A/C helps to record all
Items of income and expenditure.
The function of this account which is also referred to as General ledger Adjustment
Account or nominal legder control A/C, is quite important in a cost accounting
system.

(b)cost control accounts :

The three cost control account stores ledger control accounts, work-in-progress
control account and finished goods control A/C help to exercise control over the
concerned subsidiary ledger. Transactions kept in details in one or more A/C of the
subsidiary ledger are posted in totals, at the end of a period, to the control.
(1)stores ledger control A/C
(1)records material cost : The account records materials transactions.
(2)debit and credit : Receipts are posted from goods received notes from materials
requistions or materials issue analysis sheet. The account also record issues of
materials to outside parties, returns through return notes, and stores adjustment
through material transfer notes.
(3)Balance : The balance of this account represents the total balance of stock which
should agree with the aggregate of the balance of indiviuals foilos in the stores ledger.
(2)wages control A/C
(1)Records labour cost : this account records labour transaction.

26

(2)debits & credits : entries are made from wages analysis sheet. The account is
debited with the gross wages and is cleared by the transfer of direct labour labour to
WIP and indirect labour to factory, administration and selling and distribution
overhead control A/C or research and development A/C or capital A/C as the case
may be.
(3)factory overhead control A/C
(1)Records overhead costs : this account deals with manufacturing overhead
expenses.
(2)Debits & credits : To this account is debited the amount of indirect material,
indirect labour, and indirect expenses incurred. The figures are obtained from
materials issue analysis sheet. Where separate overhead applied account is opened,
credit is given to this account.
(4)work-in-progress control A/C
(1)Debits : This account is debited with the opening balance of work-in-progress, and
material, labour and factory overhead costs.
(2)credit : This account is credited with the cost of finished goods.
(3)balance : The balance of this account represents unfinished closing stock in
process carried over.
(5)finished goods control A/C
(1)Debits : This A/C is debited with the opening balance of finished goods; the cost of
finished goods for the period transfred from the work in progress control A/C And the amount of
administration overhead recovered, if administration overhead is not treated as period cost.
(2)Credits : It is credited with the cost of sales (by transfer to cost of sales accounts)
(3)balance : The balance of the A/C after writing back the unrecovered
administration overheads, represents unsold stock carried over.

27

(6)Administration overhead A/C :

(1)Debits : administration overhead cost is debited to this A/C.
(2)Credit : the amount of overhead recovered in the finished goods sold is credited.
Another methods is to close the administration overhead A/C by transfer to costing profit And
loss A/C. In this case, no amount of administration cost is charged to the finished goods A/C.
(7)Cost of sales A/C
(1)Debit : This A/C is debited with the cost of goods sold and selling and

distribution

overhead recovered.
(2)Credit : It is closed by transfer to costing Profit And loss A/C.

(8)Selling and distribution overhead A/C :

(1)Debit : selling and distibution costs are debited to the selling and distribution overhead
A/C.
(2)Credit : As the end of the period, the account is closed by transfer to cost of sales A/C.
(9)Overhead adjustment A/C :
(1)Debits & Credits : The amount of under absorbed or over absorbed factroy,
administration, selling and distribution overhead may be debited or credited to this A/C.
(2)Balance : The balance at the end of a period, may be either
(i) carried over to the next accounting period,
(ii) or transferred to costing profit and loss A/C,
(iii) or prorated to cost of sales A/C, WIP A/C And finished stock A/C
(10)costing profit and loss A/C

28

(1)Debits and credits : The A/C records the transfer of the amounts of underabsorbed and over-absorbed overhead, the sale value of goods sold, and the balance from the cost
of sales A/C. abnormal losses or gains to be kept out of costs are also debited or credited to the
A/C.
(2)Balance : The closing balance of this A/C represents the closing profit and loss
which should be reconciled with the financial profit and loss.

SOLVED PROBLEM
NON INTEGRATED SYSTEM
Problem no 1.
Cost man Ltd. Maintain separate set of books for financial accounts and cost accounts. The
following information is furnished for the year 2003.
Particulars
Material control A/C
W-I-P control A/C
Finished good control A/C
Cost ledger control A/C
Transaction for the year are:
Materials purchased
Materials issued as:
Direct materials
Indirect materials
Wages paid allocated as:
Direct materials
Indirect materials
Production expenses
Value of finished goods produced

Rs.
60000
90000
140000
290000
660000
450000
120000
270000
90000
240000
108000
0
120000
240000
180000
180000

Closing stock of finished goods

Administration expenses
Selling expenses
sales

0
Prepare the necessary control accounts in books of costing records.
29

Solution:
Dr.

Cost Ledger Control A/C

Particular
To costing P/L A/C (Sales)
To balance c/d

Rs
1800000
450000

particular
By balance b/d
By material control A/C
By wages control A/C
(Direct + indirect wages)
By selling and admin expenses
By costing P/L A/C
By factory overheads control A/C

22.50000
By balance b/d

Dr.

material control A/C

Particular
To balance b/d

Rs.
60000

To cost ledger control A/C

660000

particular
By WIP control A/C
Direct material
450000
Indirect material 120000
By balance c/d

720000
Dr.

Particular
To balance b/d
To WIP

Dr.
particular

Rs
290000
660000
360000
420000
280000
240000
22,50000
450000

Cr.
Rs.
570000
150000
720000

WIP control A/C

particular
To balance b/d
To material control A/C
To wages control A/C
To factory overhead control A/C

Dr.

Cr.

Rs.
90000
570000
270000
330000
1260000

particular
By finished goods A/c
By balance c/d

Rs.
1080000
180000
1260000

Finished goods control A/C

Rs
140000
1080000
1220000

Cr.

Cr.
particular
By cost of sales (bal . fig.)
By balance c/d

Rs.
1100000
120000
1220000

Factory overhead control A/C

Rs

particular
30

Cr.
Rs.

To wages control A/C

(Indirect cost)
To cost ledger control A/C

90000

By WIP

330000

240000
330000

330000

Dr.

Cost P/L A/C

particular
To cost of sales (bal. fig.)
To admin and selling exp.
To cost ledger control A/C

Rs.
1100000
420000
280000

Cr.
particular
By cost ledger control A/C

Rs.
1800000

(Costing profit)
1800000

Dr.

1800000

Trial balance

particular
Cost ledger control A/C
Material control A/C
WIP control A/C
Finished goods control A/C

Dr.

Cr.
450000

150000
180000
120000
450000

450000

ILLUSTRATION 2
A COMPANY operates separate cost accounting and financial accounting system. The following
is the list of opening balances as on 1-4-2003 in the cost ledger:
Particular
Stores ledger control A/C
WIP control A/C
Finished goods control A/C
General ledger control A/C

Dr. Rs.
53375
104595
30780

Cr. Rs.

188750

Transactions for the quarter ended 30-06-2003 are as under:

particular
Materials purchased
Materials issued to production
Materials issued for factory repairs
Factory wages paid (including indirect wages Rs. 23000)
31

Rs.
26700
40000
900
77500

Production overheads incurred

Production overhead under- absorbed and written-off
sales

95200
3200
256000

The companys gross profit is 25% on factory cost. At the end of the quarter, WIP stock
increased by Rs. 7500.
Prepare the relevant control A/C, Costing profit and loss A/C and general ledger adjustment
account to record the above transactions for the quarter ended 30-06-2003.
Solution:
Dr.

General (cost) ledger adjustment A/C

particular
To sales
To balance c/d

Rs.
256000
180000

particular
By balance b/d
By stores ledger control A/C
By wages control A/C
By overhead control A/C
By costing P/L A/C

436150
Dr.

Rs.
53375
26700

particular
By WIP control A/C
By factory overhead control A/C
By balance c/d

80075
Dr.

WIP Control A/C

Particular
To balance b/d
To stores ledger control A/C
To wages control A/C
To factory O/H A/C

Rs.
104595
40000
54500
115900
314995

particular
To balance b/d
To WIP control A/C

Rs.
188750
26700
77500
95200
48000
436150

Stores ledger control A/C

particular
To balance b/d
To general ledger adjustment A/C

Dr.

Cr.

particular
By finished goods control A/C
By balance c/d

Cr.
Rs.
40000
900
39175
80075
Cr.
Rs.
202900
112095
314995

finished goods control A/C

Rs.
30780
202900

particular
By cost of sale A/C
By balance c/d
32

Cr.
Rs.
204800
28880

233680

233680

Gross profit is 25% on factory cost or 20% on sales.

Hence cost of sales = 256000- 20% of Rs. 256000 =Rs. 204800.
Dr.
Particular
To general ledger control A/C

wages control A/C

Rs.
77500

Particular
By factory overhead control A/C
By WIP control A/C

77500
Dr.
particular
To stores ledger control A/C
To wages control A/C
To general ledger control A/C

Dr.
Particular
To factory overhead control A/C
To cost sales A/C
To general ledger control A/C

Dr
Particular
To costing P/L A/C

Cr.
Rs.
23000
54500
77500

Factory overhead control A/C

Rs.
900
23000
95200
119100

particular
By costing P/L A/C
By WIP control A/C

Cr.
Rs.
3200
115900
119100

costing P/L A/C

Rs
3200
204800
48000
256000

Particular
By sales A/C

Cr.
Rs
256000
256000

sales A/C
Rs.
256000

Cr.
Particular
To general ledger adjustment A/C

Rs.
25600
0
25600

256000

0
Dr.
Particular
To finished goods control A/C

cost of sales A/C

Rs.
204800
204800

particular
By costing P/L A/C

33

Cr.
Rs.
204800
204800

Trial balance (as on 30-6-2003)

Particular
Stores ledger control A/C
WIP control A/C
Finished goods control A/C
General ledger adjustment A/C

Dr. Rs.
39175
112095
28880
180150

34

Cr. Rs.

180150
180150

CHAPTER 4
CONCLUSION
CONCLUSION
Integrating existing databases is a very difficult task. Still, it is something that enterprises face
today and cannot avoid if they want to launch new applications or to reorganize the existing
information system for better profitability. We have discussed basic issues and solutions. We
focused on the fundamental concepts and techniques, insisting on the alternatives and on Criteria
for choice. More Details are easily found in an over-abundant literature. To the best of our
knowledge, no integration tool has yet been developed as a commercial product. Some research
Most enterprises worldview of globalization is mismatched with the reality of globalization
today; they bring a proliferation of localized standards when, more than ever, governance,
transparency and information integrity need to be maintained consistently throughout the
enterprise. By mandating common standards, implementing a standard Chart of Accounts,
building common data definitions and deploying common processes across the Finance function,
enterprises can transform into IFOs. This will position them to be more responsive, more
flexible, and to outperform their peers. To get there, CFOs should take ownership of their
Finance processes enterprise wide, simplify their technology and delivery models, and provide a
new, single version of the truth to their enterprises. They must formally define their risk
programs and take an active role in risk management. For the enterprise to live up to this vision,
change and integration will need to come from all areas of the business, not just Finance. With
this in mind, the CFO can be a leader in this charge, armed with the facts and trusted with the
reins of the enterprise in confident hands.

35

BIBLIOGRAPHY
www.wikipedia.com
www.google.com

REFERENCS

crownyou.hubpages.com ... Homework Help

www.letslearnfinance.com Accounting

www.stamfordonline.com.my/..

www.cpaireland.ie/UserFiles/

www.tutorsonnet.com Accounting Cost Accounting

crownyou.hubpages.com ... Homework Help

36