How to maintain common set of books to satisfy requirements of Cost Accounting with Financial Accounting
An integrated accounting system is the system wherein books for the Financial Accounting and Cost Accounting requirements are maintained in a common set. This is why, it is called, that Cost Accounting and Financial Accounting are integrated into one System.
CIMA defines that “integrated accounting system refers to the interlocking of the financial and cost accounting systems to ensure all relevant expenditure is absorbed into the cost accounts. Under this accounting system transactions are classified both according to their function and nature.”
Integrated accounting should be configured in a way that while it can provide information for the cost of each unit, batch, or job or any other measurable unit it should not distort financial statements viz., Profit and Loss Account and Balance Sheet.
- The purchase of raw material can be directly posted into Stores Ledger Control Account, Work-in-progress Ledger Control Account, or Overhead Account in-stead of Purchase account.
- The Direct wages can be posted into the Wages Control Account or Overheads Control Account instead of the Direct Wages account
Benefits of Integrated Accounting System:
- Since figures for financial accounts and cost accounts are from a common source, there is no requirements for reconciliation between the two.
- Saving of significant time and cost which otherwise get wasted in maintaining both accounts separately.
- Because of auto reconciliation of cost accounting with financial accounting, management reporting will be quick and accurate and it will help in timely decision making.
- It simplifies and improves the internal control mechanism
- All cost related figures are basically derived from financial records so when it is directly linked to financial accounting, it is more reliable and accurate.
- This system helps in eliminating clerical errors happens in fetching data from financial account books in preparation of cost accounts books data.
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Process for configuring Integrated accounting system:
- First of all, the degree of integration needs to be considered.
> Full Integration: Under full integration, all the cost accounting elements in deriving the cost of sales are integrated with financial accounting.
> Partial integration: Sometimes when full integration is temporarily not possible, difficult for management want to test an integrated system; integration can be configured up to a particular stage of the cost sheet such as prime cost, factory cost, cost of production, etc.
- Then the most appropriate and adaptable coding system should be developed to codifying charts of financial accounts and cost accounts including but not limited to SKU, Locations, etc.
- Standard process data documents should be developed containing all the details related to Cost Accounts and Financial Accounts.
- Establish coordination between departments handling financial information and cost information.
- The accounting department should be trained so that they can become familiar with, record transactions in, and prepare reports from the Integrated Accounting System.
- An appropriate accounting package needs to be selected which can best suit the requirements of integration, report generation, and automation of the processes.
Examples of posting under the integrated accounting system
Success always depends on your ability of timely and proper decision making. To have that ability you need accurate, reconciled, and advantageous information in your hand. This information can be generated with an Integrated Accounting System which gives all the information which you need for decision making. Using appropriate accounting package and integrating advanced applications with the software, a superior integrated accounting system can be developed for any business which can help to keep that business on top of its peers.
We at, CapActix have an expert team available to understand your reporting requirements and helps you set up an appropriate system integrating your financial accounting with cost accounting. We are a prominent Finance and Accounting Outsourcing company based in India. We can help you with establishing an integrated accounting system to make your reporting requirement accurate and reliable. For more details, you can reach us on [email protected] or call us on +1 201-778-0509