INTEGRATED ACCOUNTS

COST ACCOUNTING

A PROJECT
Submitted to the Jai Narain Vyas University,Jodhpur
For the B.com hons. Semester I
In Accounting

Under Supervision of: Submitted by:

Mr. Rahul Tapadia sir, Divya Rathore
Department:Accounting Registration No. :
J23U987014

Department of Accounting
Faculty of Commerce and Management Studies
Jai Narain Vyas University,Jodhpur
 Certificate

I, Divya Rathore, student of B. Com. Honors Semester I,

Department Of Accounting Faculty Of Commerce And
Management, Jai Narayan Vyas University, Jodhpur, hereby
certify the project was undertaken by me as a part of B.Com
Honors Accounting CBCS curriculum. The data used in the
project has been collected by me from the various subject books
and websites and therefore, I take it to be authentic and reliable.

Divya Rathore
 Acknowledgement
I would like to express my sincere gratitude to all those who
contributed to the completion of this project.
First, I would like to thank Dr. Mangu Ram sir, for providing
us the opportunity to work on this project and for his guidance
and support.
Secondly, I would like to express my utmost gratitude to all our
teachers, especially our subject teacher, Mr. Rahul Tapadia, for
their unwavering support, guidance and assistance at every step
of the project.

I would also like to express my utmost gratitude to all the of ice

faculty members for their logistics and resources, which greatly
contributed to the successful completion of this project.

I would also like to thank the seniors, friends and classmates

for their assistance and helpful insights.

Last, but not the least, I would like to express my gratitude to

my parents and other family members for providing me with all
the needed resources and for their patience, encouragement and
belief in my potential that motivated me to see this project to
its completion.

This project would not have been possible without the

collective support and guidance from all of you.

Thank You
 INTRODUCTION

Integrated Accounts

Definition: Integrated Accounts are statements in which financial and cost accounting transactions are maintained jointly. In other
words, when the cost and financial accounts are merged and recorded in the same set of books, it is referred to as Integrated
Accounts.

It accommodates complete information about both areas. However, the transactions are recorded based on the double-entry system.

It reduces duplication, increases accuracy and facilitates control over the assets & liabilities.

When it comes to suitability, integrated accounting works best for mechanized accounting as well as similar data processing methods.
It majorly focuses on the concept of centralized accounting.

This approach ascertains a variety of factors like:

• Cost of product
• Job cost
• Process cost
• Operations cost
• Marginal cost
• Variance
• Abnormal loss and gains, etc

Cost accounting records transactions functionally, whereas transactions are recorded based on their nature in financial accounts.
Integrated accounts inculcate both the above qualities while preparing books.

Content: Integrated Accounts

 1. Advantages and Disadvantages
2. Features
3. Journal Entries
4. Third Entry Method
5. Difference between Integrated and Non-Integrated Accounting Systems
6. Example
7. Final Words

Advantages and Disadvantages of

Integrated Accounts

Following are the advantages of the Integrated accounts:

1. Avoids duplication of work

As it combines statements, a single entry for one transaction is passed. Thus, there is no requirement to record
transactions at multiple places. Consequently, it helps in avoiding duplication of work.
2. No reconciliation required
There is no need for Reconciliation as we get only one profit and loss figure in the set of accounts.
3. Accuracy
The data and information recorded are more accurate. This is because it considers two essential aspects of
accounting.
4. Centralization of Accounts
The centralization of accounts occurs as accounts of two departments are prepared by one.
5. Improved coordination
It facilitates coordination among the cost and finance departments.
6. Economical
Instead of multiple ledgers, we need to maintain only one set of books, saving time and money.
7. Cumulative Knowledge
A combination of cost and financial knowledge results in better output.

Following are the disadvantages of Integrated accounts:

1. Unsuitable for large units

The integrated accounting method is not suitable for large units. The reason behind it is that we require cost &
financial data continuously.
2. Lacks perfection
The data and information are vast, so perfect integration is impossible.
3. Complicated system
Integrating requires expertise while merging the two broad accounting areas. Hence, it’s a complex task for
accountants.
Features of Integrated Accounting System
Distinctive features of integrated accounts are as follows:

• Management
Management plays an essential role in this system. The management has to decide the required degree of
integration.
• Accounts Head
We can classify the accounts heads in subsidiary ledgers like:
o Sales Ledger
o Purchase Ledger
o Store Ledger
o Stock Ledger
o Overhead ledger, etc
• Training
The responsible person should be provided with proper training to perform this accounting system.
• Coding
Proper codes should be allotted to the accounts to provide relevant information timely.
• Control Accounts
The control accounts are prepared for each subsidiary account. These control accounts follow the concept of a
double-entry system. Some control accounts are listed below:
o Store Ledger Control Account
o Stock Ledger Control Account
o Job Ledger Control Account
o Overhead Ledger Account
o Debtor Account
o Creditor Account, etc
• Accounts Manual
The managers prepare accounts manual under an integrated accounting system. It provides necessary information
regarding accounting format, method of calculation, etc.

Journal Entries of Integrated Accounts

The cost ledger control account is not prepared in an integrated accounting system. As we maintain the cost & financial records in a
single book. Here, we debit and credit the accounts head like Cash, Bank, Debtor and Creditors.

The table given below depicts journal entries for various transactions under integrated accounting.
Materials
 Labour

Direct
Expenses
Overheads

Other
Transactions

Third Entry Method

The third entry method is another alternative to the integrated accounting system. It follows the approach of the double-entry system
but differs from it in respect of cost.
Here, we record all the cost items under an additional account called the ‘Cost Ledger Control Account’.

Important points regarding the Third Entry Method are as follows:

1. Open an additional account called a cost ledger control account.

2. When any expense is incurred, this account is debited along with that expense account.
3. There is no requirement to pass double entry for the cost ledger control account.
4. The third entry analysis sheet called the cost ledger is prepared to show the cost of production of various jobs.
5. This cost ledger control account is credited and closed when the expenses are transferred to the profit and loss
account, work-in-progress account, etc.

For example, the journal entry under the third entry method for raw material purchased of Rs.10,000/- will be recorded as shown
below:

Difference between Integrated and Non-Integrated

Accounting Systems
BASIS INTEGRATED ACCOUNTS NON-INTEGRATED ACCOUNTS

It is a system in which financial

It is a combination of financial
Meaning and cost accounts are prepared
and cost accounts
separately

Reconciliation Reconciliation is not required Reconciliation is required

Separate books for cost and

Number of books One set of books is prepared
financial accounts are prepared
BASIS INTEGRATED ACCOUNTS NON-INTEGRATED ACCOUNTS

Duplication of work occurs, as one

Duplication of work doesn't
Duplication transaction is recorded in two
take place
books and reconciled at the end

It is economical as it saves
It is less economical as compared
Economical time and money while
to Integrated Accounts
maintaining books of accounts

Only one profit and loss figure

Profit and Loss Profit and loss are displayed in
is shown because of a single
Figure both books
set of books

Subsidiary ledgers are

Ledger Cost ledgers are prepared
prepared
BASIS INTEGRATED ACCOUNTS NON-INTEGRATED ACCOUNTS

Cost and Financial accounts It is an independent system of

Interdependence
are dependent on each other accounting

Example of Integrated Accounts

Alex Enterprises operates an integrated system of accounting. Pass required journal entries for the transactions listed below:

1. Raw material purchased (50% on Credit) Rs. 3,00,000/-

2. Materials issued to production Rs.2,00,000/-
3. Wages paid (50% Direct) Rs.1,00,000/-
4. Wages charged to production Rs.50,000/-
5. Factory overheads incurred Rs.40,000/-
6. Factory overheads charged to production Rs.50,000/-
7. Selling and distribution overheads incurred Rs.20,000/-
8. Finished goods at cost Rs.2,50,000/-
9. Sales (50% credit) Rs.3,75,000/-
10. Closing stock nil
11. Receipts from debtors Rs.1,00,000/-
12. Payments to creditors Rs.1,00,000/-
Final Words
An integrated accounting system is the maintenance of cost and financial accounts into one. Besides, it retrieves data and information
from both departments. And prepares a summary of all the costs and financial transactions.

Through an integrated accounting system, one can reduce duplication of work. In addition, it saves costs as the preparation of
accounts takes place in a consolidated form.
 Case Study
Integrated Accounts
Moon Group of companies is a retail chain involved in the selling of daily consumer needs directly to the
customer. They are in the process of appointing an audit firm for the audit of their accounts for the
financial year 2019-20. Moon Group is a South Indian based consumer store having a total of 16 outlets
across 4 cities in South India.
Sumant & Co. is appointed as the principal auditor for the entire group. Companies Act, 2013 prescribes
in detail the terms of this audit engagement. Further, there are many branch auditors appointed for the
outlets in the other cities. The company also has an internal audit function conducted on quarterly basis
by Ram & Co. Following are the observations during the course of the statutory audit:
(a) One of the discounts offered by the store is in the form of payback cards where reward points are
accumulated and the customer can redeem the same on subsequent purchase. The management and
internal auditors are of the opinion that the points redeemed are to be treated as trade discount.
The external auditors are doubtful on the matter.
(b) One of the outlet in Chennai region is in the verge of getting closed and is only left with low value
stock to be cleared before closure. During the year, the sales were only around Rs. 1,40,000 and the
auditor considers this component immaterial. All other outlets are performing well with good
revenue share.
(c) The gratuity valuation of the employees of the retail chain is done by an external valuer. The auditor,
considering the quantum involved appoints an external auditor’s expert for the verification of the
actuarial calculation of gratuity.
From the above facts, answer the following questions by choosing the correct answer:
Q.1 As per SA 210 - Agreeing the Terms of Audit Engagement, which of the following statement is
correct?
(a) Though law prescribes in sufficient detail the terms of
the audit engagement, the auditor still needs to record them in
a written agreement and also seek written agreement from
management that it acknowledges and understands that it
has responsibility for the preparation of financial
statements.
(b) Since law prescribes in sufficient detail the terms of
the audit engagement, the auditor need not record them in a
written agreement except for the fact that law or regulation
applies and also seek written agreement from management that it
acknowledges and understands that it has responsibility for
the preparation of financial statements.
(c) The auditor has to take an extract of the law prescribing
the details of the terms of the audit engagement and
obtain the counter signature of the management in it.
(d) Though law prescribes in sufficient detail the terms of
the audit engagement, the auditor still needs to record them in
a written agreement, however it need not seek written
agreement from management that it acknowledges and
understands that it has responsibility for the preparation of
financial statements.
Q.2 With respect to the treatment of discount on redemption of points in payback card, what should
be the action of the external auditor?

(a) The auditor can place reliance and go by the opinion of the
branch auditor and internal auditor as they have only done a
thorough and detailed audit of the accounts
(b) The auditor can place reliance on the management’s accounting policy as
prima facie they are only responsible for preparation of
financial statements.
(c) The external auditor has sole responsibility for the audit opinion expressed
and hence he should perform procedures to satisfy himself on
the correct treatment and issue opinion accordingly.
(d) The auditor can advise management on correct treatment but cannot
qualify his opinion as branch auditor’s opinion has higher authority
than external auditor’s opinion.
Q.3 What is the main objective of the external auditor, when he uses the work of the internal audit
function of Ram & Co.?

(a) To determine as to which areas, what extent the work can be

used and whetherthat work is adequate for the purposes
of the audit.
(b) To appropriately direct, supervise and review the work of the
internal audit function
(c) Review the internal audit report and audit the areas not covered by
the internal audit function
(d) Enquire from management on the special points that arose during
internal audit and follow up on the course of action on
those points.
Q.4 The external auditor finds that the branch auditor of the outlet in the Chennai region, which is in
the verge of closing down, is audited by an auditor who is not a member of the Institute of
Chartered accountants of India. What should the external auditor do?

(a) Since the professional competence of the auditor is in

question, the external auditor should himself visit the premise and
audit the accounts.
(b) Since the financial statement of the component is
immaterial, the provisions of SA 600 do not apply.
(c) The auditor can rely on the financial statements of that
component by obtaining written representation from management
that the branch auditor is otherwise well qualified.
(d) Since the professional competence of the auditor is in
question, the external auditor should coordinate with the branch
auditor and call for the books of account and other
explanations.
Q.5 Which of these is not a factor affecting the external auditor’s evaluation of the objectivity of the
internal audit function?
 (a) Whether the organizational status of the internal audit function supports
the ability of the function to be free from bias, conflict of
interest or undue influence of others to override
professional judgment.
(b) Whether the internal audit function is free of any conflicting
responsibilities.
(c) Whether the internal auditors have adequate technical training and
proficiency in auditing.
(d) Whether those charged with governance oversee employment decisions
related to internal audit function.

Answer - Integrated Case Study 1

Q. No. Answer Reason

Q.1 (b) As per SA 210, if law or regulation prescribes

in sufficient detail the terms of the audit
engagement, the auditor need not record them in a
written agreement, except for the fact that such
law or regulation applies and that management
acknowledges and understands its responsibilities.
Q.2 (c) As per SA 600 and SA 610, Statutory auditor
may use the work performed by Another Auditor
and Internal Auditor respectively, however, ultimate
responsibility for opinion expressed is of Statutory
auditor. Hence, he should perform procedures to satisfy
himself on the correct treatment and issue opinion
accordingly.
Q.3 (a) As per SA 610, the objectives of the external
auditor, if using the work of the internal audit
function, is to determine whetherthat work is
adequate for purposes of the audit.
Q.4 (b) As per SA 600, when the principal auditor concludes
that the financial information of a
component is immaterial, the procedures outlined in
SA 600 do not apply. When several components,
immaterial in themselves, are together materialin
relation to the financial information of the
entity as a whole, the procedures outlined in
SA 600 should be considered.
Q.5 (c) As per SA 610, in evaluation of the objectivity
of the internal audit function, external auditor considers
organisational status of internal audit function, conflicting
responsibilities, oversight functions of TCWg w.r.t.
employment decisions related to the internal audit
function.
 BIBLIOGRAPHY
For successfully completing my project file,
I have take help from the following website links:-

• www.google.com
• www.wikipedia.com
• youtube