Integrated and Non Integrated Accounting System: Amazing Journey of Logic and Concepts

Integrated and Non Integrated
Accounting System
By – CA. Ashim Bhatta
Amazing journey of logic and concepts

Cost accounting system
Accounting information is important for every business
which will serve the needs of variety of interested parties.
To satisfy the needs of all interested parties a sound
accounting system is very necessary. It may be divided in
to three parts: Financial accounting, Management
accounting, and Cost accounting
There are two system used in maintenance of cost

records i.e. integrated records and non- integrated
records
Non-integrated/ Inter locking accounting system
A system of accounting where two sets of books are maintained- (i) for
costing transactions; and (ii) for financial transactions. Under such a
system the cost accounts restrict itself to recording only those
transactions which relate to the product or service being provided.
Features of Interlocking Accounting System

1. In interlocking accounting system, two set of accounts are prepared.
2. In interlocking accounting system, all big organisation, take benefits
of cost accounts separately from financial accounts. So, it can more
control on cost.
3. In interlocking accounting ledger, cost accounts are maintained in
cost ledger and financial accounts are maintain in financial ledger.
Integrated accounting system
This is a system where cost accounts and financial accounts are
combined in one set of accounts.
In integrated account, ledger system has a number of features which

may be viewed as preferable to the interlocking ledger system. In the
recent decade, there has in fact been a move towards greater integration
of accounting information requirements in a single unified system (an
integrated ledger system).
Control Accounts
Control Accounts are the total accounts maintained in the cost ledger. These are
accounts maintained for the purpose of exercising control over the costing ledgers
and also to complete the double entry in cost accounts. Following are the important
accounts in the cost ledger (cost ledger is the principal book of accounts which
contains all impersonal accounts):
General Ledger Adjustment (or cost or financial ledger control) Account
Store ledger control Account
Wage Control Account
Production/ Works/ Manufacturing overhead Account
Work in progress Control Account
Administration overhead Account
Finished Good ledger control Account
Selling and Distribution Overhead Account
Cost of sales account
Sales Account
Costing Profit and loss Account
Points to be noted
 If question is silent about costing system we can easily identify by looking at
accounts in opening trail balance
Balance of Cost ledger control accounts is always credit.
If nothing is mention in question, charge the under/ over absorption to costing PL.
If opening Trail consist of overhead or overhead suspense account, we should also
record in the same way during the period. (in this case it should not be charged to
costing PL).
Points to be noted
Amount should not be transferred from one over head account to another overhead
account. (for ex. Admin OH allocated to sale). It should be directly posted to cost of
sales instead of S & D OH account.
Once capital WIP is completed, it should be transferred to cost ledger control

account and balance should be made NIL.
Difference figure on Store ledger control account is shortage.
Under/ Over absorption only happens in cost account. Over head is booked on
actual basis on financial account.
If over/ under absorption of overhead is given in reconciliation for adjustment,

company must have carry forwarded the under/over absorbed amount.
Difference between Integrated and
Interlocking System
Scope
Interlocking system deals with the cost accounting aspect of the business, where integrated
system both financial and cost aspect are dealt.
Book of Account
In interlocking system two separate set of account are maintained for cost accounting and
financial reporting. While in integrated system one set of book of account is maintained.
Duplication of Data
In interlock system, there is duplication of data and too much data is processed and
maintained within organization. In integrated system there is no duplication of data.
Resources Allocation
Interlocking system requires of consumes more resources than integrated system. These
resources can be categorized in term of employee time, cost of processing the data etc.
Manual Book Keeping
Interlocking system is only maintained in manual books of account. In modern world, there
is no concept of interlocking system, as computerized environment is based on integrated
concept.
Journal Entries – Non integrated
Materials Purchased 5,25,000
Materials Purchased for Special Jobs 32,000
Materials Issued to Production 4,25,000
Materials Returned to Suppliers 15,000
Direct Wages applied 2,20,000
Factory Overheads Incurred 1,80,000
Material transferred from one job to another 45,000
Indirect Wages 60,000
Materials Issued for Repairs 53,000
Factory Overheads Absorbed at 75% of Direct Wages ?
Administration Overheads Absorbed 1,20,000
Production Finished During the Year 8,00,000
Cost of Finished Goods Sold 10,00,000
Sales 12,00,000
Transfer to General Reserve 2,500
Treatment of Under/ Over absorption of Overheads
Three methods as we already studied on Overhead control chapter:
 Charge to costing PL
 Carry forward to next accounting period
 Use of supplementary rate
Only if organization is carrying forward the under/over absorption of overhead

there is a difference between cost and financial accounts and have impact on
reconciliation
Overhead Adjustment Account - This account is to be debited for under-

recovery of overhead and credited with over-recovery of overhead amount. The
net balance in this account is transferred to Costing Profit & Loss Account

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Integrated and Non Integrated

By – CA. Ashim Bhatta

Amazing journey of logic and concepts

There are two system used in maintenance of cost

Features of Interlocking Accounting System

In integrated account, ledger system has a number of features which

Balance of Cost ledger control accounts is always credit.

Once capital WIP is completed, it should be transferred to cost ledger control

Difference figure on Store ledger control account is shortage.

If over/ under absorption of overhead is given in reconciliation for adjustment,

Three methods as we already studied on Overhead control chapter:

Only if organization is carrying forward the under/over absorption of overhead

Overhead Adjustment Account - This account is to be debited for under-

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