A reconciliation statement reconciliation statement

(A) Reconciliation Statement: Reconciliation statement is a popular and important
method of cost accounts and financial accounts. The method or procedure of
preparing reconciliation statement. The following method or procedure is
recommended for preparing a Reconciliation Statement:
(i) Ascertain the reasons/points of difference between cost accounts and financial
accounts.
(ii) Start with the profit as shown by the cost accounts.
(iii) (a) Regarding items of expenses and losses:
Add: Items over-charged in cost accounts.
Less: Items under-charged in cost accounts.
For example, depreciation in cost accounts is Rs. 3,000 and that in financial
accounts is Rs. 3,400. This has the effect of increasing costing profit by Rs. 400 as
compared to financial profit. Then in order to reconcile, Rs. 400 will be deducted
from costing profit.

Application of Cost Accounting
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Notes
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(b) Regarding items of income:
Add: Items under-recorded in cost accounts.
Less: Items over-recorded in cost accounts.
For example, interest on investments received amounting to Rs. 3,000 is not
recorded in cost accounts. This will have the effect of reducing profit by Rs. 3,000.
Then in order to reconcile, this amount of Rs. 3,000 for interest should be added in
the costing profit.
(c) Regarding stock valuation:
Opening stock
Add: Over-valuation in cost accounts.
Less: Under-valuation in cost accounts.
Closing stock
Add: Under-valuation in cost accounts.
Less: Over-valuation in cost accounts.
The above treatment of items will be reversed when the starting point in the
reconciliation statement is the profit as per financial accounts or loss as per cost
accounts.
(v) After making all the above additions and deductions in costing profit, the resulting
figure shall be the profit as per financial books.
(vi) At some places, ‘Memorandum Reconciliation Account’ is prepared in place of
‘Reconciliation Statement.’
(vii) The following formula for easy reconciliation (with cost profit):
For Expenses items: Add the excess, deduct the shortage.
For Income items: Add the shortage, deduct the excess.
Following is the proforma of a reconciliation statement:
Proforma of Reconciliation Statement
For the year ending ...........
Particulars Amount
(Rs.) (+)
Amount
(Rs.) ( − )
Profit as per Cost Accounts ...
Add : (i) Expenses over-charged in cost account ...
(ii) Income not included in cost account ...
(iii) Over-valuation of opening stock in cost account ...
(iv) Under-valuation of closing stock in cost account ...
(v) Expenses recorded in cost account but not
charged in financial account
...
(vi) Income recorded in financial books but not
recorded in cost books
...
(vii) Items credited in financial books but not recorded
in cost books
...
(viii) Depreciation over-charged in cost account ... ...
...
Less : (i) Expenses under-charged in cost account
(ii) Expenses not charged in cost account ...