1. What is an interlocking accounting system?
2. Highlight the reasons that cause the profit figures in the cost accounting books and those in the financial books to be different
3. Highlight the advantages of integrated systems.
4. Highlight some of the items that may appear in the cost accounting books and not financial accounting books.
1. Interlocking accounting system is a system where separate cost accounting and financial accounting books are maintained although both use the same basic accounting data.
2. Differences between the profit figures in the cost books and the financial books are
caused by factors such as
• Items shown only by one set of accounts
• Different bases of stock valuation
• Different treatment of overheads
3. Integrated ledger system has the following advantages:
i. There is only one set of accounting records which is kept with sufficient analysis to enable the preparation of financial and cost accounting statements and to facilitate the control mechanisms undertaken by financial and management accountants.
ii. There is only one profit and loss account. This removes the possibility of senior management confusion and frustration from the production of two seemingly different profit figures.
iii. There is no requirement to reconcile cost and financial accounting records.
iv. There is a removal of the duplication of effort and cost which arises when separate ledger are maintained.
v. The integrated ledger system fits in with the use of computer based information systems and a database approach to information availability and use.
4. Items that appear only in cost accounting books
• Interest on capital employed in production
• Notional rental charges of premises owned