RECONCILIATION BETWEEN FINANCIAL AND COST ACCOUNTING

Reconciliation Between Financial and Cost Accounting

Meaning of Reconciliation

Reconciliation refers to the process of comparing and adjusting the profits as shown by two different sets of accounting records. In the context of cost and financial accounting, reconciliation is done to ensure that the profit or loss shown by the cost accounts matches with the profit or loss shown by the financial accounts.

Why Reconciliation is Needed

• To identify and explain the reasons for the difference in profits shown by cost and financial accounts
• To ensure accuracy and consistency of records
• To verify correct allocation of expenses and incomes
• To improve internal controls and reporting mechanisms

Common Reasons for Differences

Steps to Reconcile

1. Start with profit as per cost or financial accounts
2. Add items that increase profit in financial accounts but are not in cost accounts
3. Deduct items that reduce profit in financial accounts but not in cost accounts
4. Arrive at the reconciled profit

Example of Reconciliation Statement

Given: Profit as per Cost Accounts = ₹80,000

Conclusion

Reconciliation helps ensure accuracy between the cost and financial records. It reveals errors, improves decision-making, and ensures that all expenses and incomes are accounted for properly.