Question

List the steps involved in the preparation of Reconciliation Statement.

Hint:

Start with cost profit, adjust for incomes, expenses and stock differences.

Answer 1

A Reconciliation Statement is created to align the profit figures from cost accounting with those from financial accounting. This process is necessary due to discrepancies in how certain transactions are recorded. The reconciliation involves the following steps: 1. Select either the cost accounts profit or financial accounts profit as the starting point. 2. Incorporate financial account items absent in cost accounts, such as income or gains like interest received. 3. Remove financial account items not present in cost accounts, such as purely financial expenses like investment losses. 4. Rectify any under- or over-absorption of overheads, as these contribute to profit variances. 5. Adjust for differences in stock valuation if opening or closing stock is valued differently between cost and financial accounts. 6. Compute the final profit or loss after all adjustments to ensure congruence between the two sets of accounts. This procedure serves to verify the accuracy and dependability of both cost and financial records.