Accountancy · Chapter 15
Study notes aligned to the official NEB syllabus.
When a business keeps its cost accounts and its financial accounts as two separate sets of books, the profit shown by the two will usually not agree. Neither figure is wrong; they differ because the two systems record certain items differently, or record items that the other leaves out. To explain and prove this difference, a cost reconciliation statement is prepared. This chapter studies why the profits differ and how the reconciliation is done.
A cost reconciliation statement is a statement prepared to reconcile, that is, to bring into agreement, the profit or loss shown by the cost accounts with the profit or loss shown by the financial accounts. Its purpose is to identify the reasons for the difference between the two profits, to prove the arithmetical accuracy of both sets of books, and to satisfy management that the difference is fully explained and not the result of an error.