COST AND FINANCIAL ACCOUNTING.
Causes of differences:-
1)Purely financial items:
i)Appropriation of Profits-Transferred to
dividend paid etc.
ii)Loss on sale of investment,penalties and fines.
iii)Interest received on bank deposits,profit on sale of
investments,fixed assets,transfer fees.
2) Purely cost accounting items:- Notional Rent/Interest/Salary
3)Valuation of Stock:-
i)Raw material = In financial accounts stock is valued at cost or market value whichever is less,
while in cost accounts it is valued at LIFO,FIFO etc.
ii)Work in progress = In financial accounts administrative expenses are also considered while valuing
stock but in cost accounts it may be valued at prime or factory cost or cost of production.
iii)Finished Goods = In financial accounts it is valued at cost or market price whichever is less,in
cost accounts it is valued at total cost of production.
4)Overheads: In financial= Actual expenses are taken. In cost=Expenses are taken at predetermined rate.
5)Depreciation: In financial=Charged in diminishing or fixed balance method. In cost=Charged in machine hour rate.
6)Abnormal Gains: In financial=Taken to profit and loss account. In cost=Excluded to cost accounts or charged to costing profit and loss account.