Part 1 looks at what’s interlocking or non-integrated systems.
This Part 2 looks at what’s integrated system accounting, its pre-requisites of installing the system and some of the advantages.
Part 3 explains some of the reasons for the differences/discrepancies/disagreement of profits as per cost accounting book and the financial books.
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Integrated Accounts
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- A system of accounting where the cost and financial accounts are kept in the same set of books.
- This system avoids the need for separate set of books for financial and costing purposes.
- Able to provides or meets the information requirement for costing plus financial accounts.
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Pre-requisites/requirement of Integrated Accounting System
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- Top management needs to decide the extend of integration of the two set of books re: to integrate until the stage of primary cost or factory cost or full integration.
- A suitable coding system must be developed to serve the purposes of both financial and cost accounting
- An agreed routine, with regard to the treatment of provision for accruals, prepaid expenses, other adjustments necessary for the preparation of interim accounts
- Proper coordination should exist between the staff responsible for the financial and cost aspect of the accounts
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Advantages of Integrated Accounts:
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Basically, in an integrated accounting system, the financial and cost transactions are recorded in an integrated ledger which is self balancing.The advantages are as follows:
- Savings in clerical work because one set of accounts is kept thereby reducing clerical costs;
- No need to reconcile financial and cost profits;
- No confusion arises from different stock valuations, method of depreciation and profits
- The probability of error is less because recording takes place in one set of accounts and
- Information produced on an integrated system is quicker, thus helping management in decision making
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