Chapter-2

Integrated System of Cost Accounting:

Meaning:
ICMA has defined Integrated system as "a system in which the financial and cost accounts
are inter-locked to ensure that all relevant expenditure is absorbed into the cost accounts."
Under this accounting system transactions are classified both according to their function and
nature.

Integrated (or Integral) Accounts is the name given to a system whereby cost and financial
accounts are kept in the same set of books. Obviously, then there will be no separate sets of
books for Costing and Financial purposes.

Integral system helps to ascertain marginal cost, variances, abnormal losses and gains in
fact, all information that management requires from a system of Costing for doing its work
properly. The integrated accounts give full information in such a manner so that the profit
and loss account and the balance sheet can be prepared according to the requirements of law
with the help of Integral System, management can have full control over the liabilities and
assets of its business.

Integrated Accounts is the name given to a system of accounting, whereby cost and
financial accounts are kept in the same set of books. Obviously, then there will be no
separate sets of books for Costing and Financial records. Integrated accounts provide or
meet out fully the information requirement for Costing as well as for Financial Accounts.
For Costing it provides information useful for ascertaining the cost of each product, job,
process, operation of any other identifiable activity and for carrying necessary analysis.
Integrated accounts provide relevant information which is necessary for preparing profit and
loss accounts and the balance sheets as per the requirement of law and also helps in
exercising effective control over the liabilities and assets of its business.

Features:
The essential features of an integrated system are as follows:
1) Financial Transactions: The integrated system records, besides internal costing
transactions, other financial items not normally required for cost accounting. Accounts
for capital expenditure, sundry creditors and debtors, share capital, cash and bank
transactions, and prepayments and accruals are opened.
2) Store Transactions: Store transactions are recorded in the Stores Control Account. The
cost of stores purchased is debited to the Stores Control Account and credit is given to
Cash or Sundry Creditors Accounts depending upon whether the purchase is made for
cash or credit.
3) Wages & Expenses: The wages paid are debited to the Wages Control Account;
corresponding credit is taken in the Cash or Bank Account. Similarly, overhead
expenses incurred are debited to the Overhead Control Account by credit to the Cash or
Bank Account or the Sundry Creditors Account.
4) Third Entries: Suitable cost analysis is made of the transactions relating to material,
labor and overhead, which are posted in the Stores, Wages, and Overhead Control
Accounts and at the end of the accounting period, transfer of the total is made to the
Work-in-Progress Account by crediting the various control accounts. The day-to-day
cost analysis made for this purpose is known as 'making third entries'. As would be
 apparent, the third entries do not mean entries in the same sense as the entry of
transactions in ledgers but these are simply a sort of cost analysis.
5) Accruals & Pre-payments: All accruals are debited and advance payments credited to
the respective control accounts by contra entries in the accrual and pre-payment
accounts.
6) Capital Expenditure: Capital expenditure is separated in the process of cost analysis
and credited to the control accounts by debit to the Capital Assets Account.
7) Cost Control Account: Sometimes a separate "Cost Control Account' is opened to
record the cost transactions. The Wages Control and Overhead Control Accounts are
dispensed with and all transactions relating to wages and overhead are entered in the
Cost Control Account. Materials issued to production are debited to the Cost Control
Account by credit to the Stores Control Account. If a Provision for Depreciation
Account is maintained, depreciation is credited to this account by debit to the Cost
Control Account. At the end of the accounting period, 'third entries are made and the
totals are posted to the Work-in-Progress Account by credit to the Cost Control
Account.
8) Work-in-Progress Account(s): The Work-in-Progress Account may be split up into
three separate accounts, viz. Materials-in-Process, Labour-in-Process, and Factory
Overhead-in-Process Accounts.

Advantages:
The main advantages of Integrated Accounts are as follows:
1. No need for Reconciliation- The question of reconciling costing profit and financial
profit does not arise, as there is only one figure of profit.
2. Less efforts- Due to use of one set of books, there is a significant saving in efforts
made.
3. Less time consuming- No delay is caused in obtaining information as it is provided
from books of original entry.
4. Economical process- It is economical also as it is based on the concept of
“Centralisation of Accounting function”.
Essential pre-requisites for Integrated Accounts:
The essential pre-requisites for integrated accounts include the following steps:
1. The management’s decision about the extent of integration of the two sets of books.
Some concerns find it useful to integrate up to the stage of prime cost or factory cost
while others prefer full integration of the entire accounting records.
2. A suitable coding system must be made available so as to serve the accounting
purposes of financial and cost accounts.
3. An agreed routine, with regard to the treatment of provision for accruals, prepaid
expenses, other adjustment necessary for preparation of interim accounts.
4. Perfect coordination should exist between the staff responsible for the financial and
cost aspects of the accounts and an efficient processing of accounting documents
should be ensured.
Under this system there is no need for a separate cost ledger. Of course, there will be a
number of subsidiary ledgers; in addition to the useful Customers’ Ledger and the Bought
Ledger, there will be: (a) Stores Ledger; (b) Stock Ledger and (c) Job Ledger.
# Transaction Financial Accounting Non Integrated Accounting Integrated Accounting
_____________________________________________________________________________________________________________________________________
1. Purchase of Material Purchases A/c Store Ledger Control A/c Store Ledger Control A/c
To Cash / Creditors A/c To General Ledger Control A/c To Cash / Creditors A/c

2. Purchases Return Cash / Creditors A/c General Ledger Control A/c Cash / Creditors A/c
To Purchases Returns A/c To Store Ledger Control A/c To Store Ledger Control A/c
3. Purchase of Material Purchase A/c Work in Progress Control A/c Work in Progress Control A/c
for specific jobs1 To Cash / Creditors A/c To General Ledger Control A/c To Cash / Creditors A/c
________________________________________________________________________________
4. Payments to Creditors
Creditors A/c No Entry Creditors A/c
To Cash / Bank A/c To Cash / Bank A/c
__________________________________________________________________________________

5. Issue of Direct Material No Entry Work in Progress Control A/c Work in Progress Control A/c
to Production To Store Ledger Control A/c To Store Ledger Control A/c
___________________________________________________________________________________
6. Return of Direct Material No Entry Store Ledger Control A/c Store Ledger Control A/c
to Store To Work in Progress Control A/c To Work in Progress Control A/c
___________________________________________________________________________________
7. Issue of Indirect Material No Entry Factory Overheads Control A/c Factory Overheads Control A/c
to Productions / Factory To Store Ledger Control A/c To Store Ledger Control A/c
___________________________________________________________________________________
8. Return of Indirect Material No Entry Store Ledger Control A/c Store Ledger Control A/c
to Store To Factory Overheads Control A/c To Factory Overheads Control A/c
9. Transfer of Material from No Entry Transferee Job A/c No Entry
one job to another job2 To Transferor Job A/c
___________________________________________________________________________________
10. Normal Loss of Material No Entry Factory Overheads Control A/c Factory Overheads Control A/c
in Store3 To Store Ledger Control A/c To Store Ledger Control A/c
___________________________________________________________________________________
11. Abnormal Loss / Theft / Shortage Profit & Loss A/c* Costing Profit & Loss A/c Profit & Loss A/c
of Material in Store Purchase A/c To Store Ledger Control A/c To Store Ledger Control A/c
12. Wages paid or unpaid
Wages A/c Wages Control A/c Wages Control A/c
To Cash or O/s Wages A/c To General Ledger Control A/c To Cash or O/s Wages A/c
___________________________________________________________________________________
13. Direct Wages allocated No Entry Work in Progress Ledger Control A/c Work in Progress Control A/c
to Production / Factory To Wages Control A/c To Wages Control A/c
___________________________________________________________________________________

14. Indirect Wages allocated No Entry

Factory Overheads Control A/c Factory Overheads Control A/c
to various Departments Office Overheads Control A/c Office Overheads Control A/c
Selling Overheads Control A/c Selling Overheads Control A/c
To Wages Control A/c To Wages Control A/c
___________________________________________________________________________________
 15. Abnormal Loss of Time No Entry Costing Profit & Loss A/c Profit & Loss A/c
To Wages Control A/c To Wages Control A/c
16. Direct Expenses incurred
Expense (Name) A/c Direct Expenses Control A/c Direct Expenses Control A/c
To Cash or O/s Exp. A/c To General Ledger Control A/c To Cash or O/s Exp. A/c
___________________________________________________________________________________
17. Direct Expenses allocated No Entry Work in Progress Control A/c Work in Progress Control A/c
to Production To Direct Expenses Control A/c To Direct Expenses Control A/c

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
18. Indirect Expenses incurred Expense (Name) A/c
Factory Overheads Control A/c Factory Overheads Control A/c
in cash or not paid To Cash or O/s Exp. A/c
Office Overheads Control A/c Office Overheads Control A/c
Selling Overheads Control A/c Selling Overheads Control A/c
To General Ledger Control A/c To Cash or O/s Exp. A/c
___________________________________________________________________________________
19. Factory Overheads No Entry Work in Progress Control A/c Work in Progress Control A/c
allocated to production To Factory Overheads Control A/c To Factory Overheads Control A/c
___________________________________________________________________________________
20. Administration Overheads No Entry Finished Goods Control A/c Finished Goods Control A/c
allocated to Finished Goods To Office Overheads Control A/c To Office Overheads Control A/c
___________________________________________________________________________________
21. Selling Overheads No Entry Cost of Sales A/c Cost of Sales A/c
allocated to Cost of Sales To Selling Overheads Control A/c To Selling Overheads Control A/c
___________________________________________________________________________________
22. Over Absorption of No Entry Overhead Control A/c (Name) Overhead Control A/c (Name)
any Overheads To Costing Profit & Loss A/c To Profit & Loss A/c
___________________________________________________________________________________
23. Under Absorption of No Entry Costing Profit & Loss A/c Profit & Loss A/c
any Overheads To Overhead Control A/c (Name) To Overhead Control A/c (Name)
___________________________________________________________________________________
24. Abnormal Loss of Product Profit & Loss A/c* Costing Profit & Loss A/c Profit & Loss A/c
or Accidental Losses Trading A/c To Work in Progress Control A/c To Work in Progress Control A/c
___________________________________________________________________________________
25. Sale of Scrap of Material Cash A/c General Ledger Control A/c Cash A/c
To Sales of Scrap A/c To Work in Progress Control A/c To Work in Progress Control A/c

26. Transfer of Cost from WIP No Entry Finished Goods Control A/c Finished Goods Control A/c
to Finished Goods To Work in Progress Control A/c To Work in Progress Control A/c
___________________________________________________________________________________
27. Transfer of Cost from F.G. No Entry Cost of Sales A/c Cost of Sales A/c
to Cost of Sales To Finished Goods Control A/c To Finished Goods Control A/c
___________________________________________________________________________________
27. Transfer of Cost of Sales No Entry Costing Profit & Loss A/c Profit & Loss A/c
to Costing Profit and Loss A/c To Cost of Sales A/c To Cost of Sales A/c
___________________________________________________________________________________
27. Sale of Finished Goods Cash / Debtors A/c General Ledger Control A/c Cash / Debtors A/c
To Sales A/c To Costing Profit & Loss A/c To Profit & Loss A/c
Practical Questions:
Q.1) From the following information, you are required to pass journal entries under the
Integrated Accounts System.
Particulars Rs.
Materials purchased on credit 25,000
Wages paid 32,000
Wages :
- Productive 28,000
- Unproductive 4,000
Materials issued to production 23,000
Works Expenses incurred 14,000
Works Expenses charged to production 15,000
Administration Expenses paid 8,800
Administration Expenses charged to production 8,700
Sales (Cash) 78,000
Finished Goods at cost 60,000

Q.2) Journalize the following transactions under the Integral Accounting System.
Particulars Rs.
Direct Wages paid in cash 60,000
Indirect Wages paid in cash 30,000
Purchases made in cash 15,000
Purchases (Credit) 2,90,000
Stores issued against Production Order 2,75,000
Works Expenses incurred and paid in cash 55,000
Works Expenses allocated to jobs 80,000
Administration Expenses paid in cash 40,000
Administration Expenses allocated to jobs 48,000
Finished Goods transferred to Warehouse 4,50,000

Q.3) Shivalika Enterprise operates an integral system of accounting. You are required to
pass Journal Entries for any four of the following transactions that took place for the year
ended 31" March, 2020. (Narration is not required)
Particulars Rs.
Raw Material purchased (50% on credit) 60,000
Materials issued to production 40,000
Factory Overheads incurred 8,000
Sales (50% credit) 75,000
Receipts from Debtors 20,000
Payment to Creditors 20,000

Q.4) Journalise the following transactions assuming cost & financial accounts are
integrated:
Particulars Rs.
Raw Materials purchased 1,50,000
Direct Materials issued to works 1,12,500
Wages paid (30% Indirect) 90,000
 Wages charged to Production 75,000
Manufacturing Expenses incurred 63,000
Manufacturing Overhead charged to production 68,000
Selling & Distribution Costs 15,000
Finished Products at cost 1,50,000
Sales 2,23,000
Receipt from Customers 52,500
Closing Stock Nil
Paid to Creditors 82,500

Q.5) Show the journal entries for the following transactions in the Integrated Books of
Account:
Particulars Rs.
Cash purchase 18,000
Credit purchase 2,45,000
Materials issued to production 3,25,000
Wages paid to workers 1,38,612
Finished goods transferred from production 6,29,775
Administrative overhead allocable to production 78,900
Works expenses outstanding 2,25,000
Goods sold during the month 7,65,000

Q.6) Sarex Chemicals started operation on 1" January, 2019. Following transactions took
place till the year ended 31st December, 2019.
Particulars Rs.
Materials Purchased 20,80,000
Material Issued to Production 12,00,000
Material Returned to Supplier 40,000
Material Returned from Production 20,000
Total Wages Paid 26,00,000
Wages Allocated as follows
- Direct Wages 24,00,000
- Indirect Wages 2,00,000
Factory Overheads Paid 13,20,000
Factory Overheads Allocated to Production 50% of Direct Wages
Cost of Goods Produced 45,00,000
Cost of Goods Sold 32,00,000
Sales for the Year 40,00,000
Prepare Journal relevant control accounts and draw Trial balance as on 31 December, 2019.
Q.7) From the following particulars pass journal entries in an Integrated System of Accounting in
the books of M/s. Aditya Ltd.:
Particulars Rs.
Raw materials purchased (75% on credit) 4,90,000
Materials issued to production 3,70,000
Total wages paid 2,00,000
Wages charged to production 1,50,000
Factory overhead incurred 1,55,000
Factory overheads charged to production 1,30,000
 Office overheads incurred 90,000
Office overheads applied to finished goods 70,000
Selling and Distribution overheads incurred 38,000
Selling and Distribution overheads applied to cost of sales 30,000
Finished Goods produced 4,00,000
Materials issued for construction of building 25,000

Q.8) Dutta Enterprises operates an integral system if accounting. You are required to pass
the journal entries for the following transactions that took place for the year ended 31-3-
2020. (Narrations are not required).
Particulars Rs.
Raw Materials Purchased (50% on credit) 6,00,000
Materials Issued to Production 4,00,000
Wages paid (50% Direct) 2,00,000
Wages Charged to Production 1,00,000
Factory Overheads incurred 80,000
Factory Overheads Charged to Production 1,00,000
Selling and distribution Overheads incurred 40,000
Finished goods at Cost 5,00,000
Sales (50% Credit) 7,50,000
Closing Stock Nil
Receipts from Debtors 2,00,000
Payments to Creditors 2,00,000

Q.9) Journalize the following transactions in the integrated books of account:

Particulars Rs.
Credit Purchase 12,00,000
Production Wages paid 7,00,000
Stock issued to production orders 8,00,000
Works expenses charged to production 4,50,000
Finished goods transferred from production orders 18,00,000
Administration Expenses Charged to Production 1,50,000
Work Expenses Outstanding 1,20,000
Work Expenses paid 4,60,000

Q.10) Journalise the following transaction under integrated system:

Particulars Rs.
Raw material purchased 25,000
Direct Material issued to product 12,000
Direct Wages paid (30% indirect) 15,000
Direct Wages charged to production 9,000
Manufacturing Expenses incurred 7,500
Manufactured Expenses charged to production 8,400
Selling and distribution cost 2,400
Finished product at cost sales 21,000
Sales 32,000
 Closing Stock Nil
Collection from Debtors 5,800
Payment to Creditors 9,900

Q.11) Cost Ledger of Beta Lid. shows the following balances as on 31 March:
Particulars Rs. Rs.
Stores Ledger Control A/c 6,02,870 -
Work-In-Progress 2,44,730 -
Finished Stock Ledger Control A/c 5,03,890 -
Manufacturing Overhead Control A/c - 21,050
Cost Ledger Control A/c - 13,30,440
Total 13,51,490 13,51,490
During the next three months, the following items arose:
Particulars Rs.
Finished Product (at cost) 4,21,670
Manufacturing Overhead incurred 1,83,020
Raw Materials purchased 2,46,000
Factory Wages 1,01,060
Indirect Labour 43,330
Cost of Sales 3,71,780
Materials issued to Production 2,54,630
Sales returned at cost 10,760
Materials returned to suppliers 5,800
Manufacturing Overhead charged to production 1,54,400
You are required to write up the Journal.
Q.12) On 31" March, 2020; the following balances were extracted from the books of the
Supreme Manufacturing Company:
Particulars Rs. Rs.
Stores Ledger Control A/c 35,000 -
Work-In-Progress 38,000 -
Finished Goods Control A/c 25,000
Cost Ledger Control A/c - 98,000
Total 98,000 98,000
The following transactions took place in April, 2020:

Particulars Rs.
Raw Materials: 95,000
-Purchased 3,000
-Returned to Suppliers 98,000
-Issued to Production 3,000
-Returned to Stores 40,000
Productive Wages Indirect Labour 25,000
Factory Overheads Expenses incurred 50,000
Selling & Administrative Expenses 40,000
Cost of Finished Goods transferred to Warehouse 2,13,000
Cost of Goods sold 2,10,000
Sales 3,00,000
Factory overheads are applied to production at 150% of direct wages, any under / over absorbed
overhead being carried forward for adjustment in the subsequent months. All administrative &
selling expenses are treated as period cost and charged off to the Profit & Loss Account of the
month in which they are incurred.
Show the following accounts:
a) Cost Ledger Control Account.
b) Stores Ledger Control Account.
c) Work-In-Progress Control Account.
d) Finished Goods Stock Control Account.
e) Factory Overhead Control Account.
f) Costing Profit & Loss Account.
g) Trial Balance as at 30th April, 2020.

Q.13) Dickensons & Co. supplies you the following cost ledger balances as on 1st January,
2020:
Particulars Rs. Rs.
Stores Ledger Control A/c 8,500 -
Work-In-Progress Ledger A/c 6,500 -
Finished Goods Control A/e 7,100
Cost Ledger Control A/c - 22,000
Works Overhead Control A/c - 100
Total 22,100 22,100
Transactions during the year 2019 were as follows:
Particulars Rs.
Purchases 40,000
Stores Issued:
-Works Repairs 38,000
- Work Repairs 1,000
Wages:
-Productive 45,000
-Unproductive 4,500
Works Repairs 800
Works Expenses (Rent, Light etc.) 15,000
Works Overhead Recovered 21,000
Administration Expenses 4,500
Administrative Overhead Recovered 5,000
Goods sold 1,30,000
Finished Goods in Stock on 31st December, 2019 5,000
Work-ln-Progress on 31st December, 2019 3,100
You are required to Journalise the above transactions.
Q.14) BPR Limited keeps books on integrated accounting system. The following balances
appear in the books as on April 1, 2019:

Particulars Rs. Rs.

Stores Control A/c 40,950 -
Work-in-progress A/c 38,675 -
Finished goods A/c 52,325 -
Bank A/c - 22,750
Creditors A/c - 18,200
 Debtor A/c 1,47,875 -
Fixed assets A/c 27,300 -
Share Capital A/c - 1,82,00
Provision for depreciation A/c - 11,375
Provision for doubtful debts A/c - 3,725
Factory overheads Outstanding A/c - -
Prepaid administration Overheads A/c 9,975 -
Profit and Loss A/c - 72,800
Total 3,17,100 3,17,100
The transactions for the year ended March 31,2020 were as given below:
Total Wages: 2,09,300
-Direct Wages 197,925
-Indirect Wages 11,375
Purchase of Materials (On Credit) 2,27,500
Materials issued to production 2,50,250
Materials issued for repairs 4,550
Goods finished during the year (at Cost) 4,89,125
Credit Sales 6,82,500
Cost of Goods Sold 5,00,500
Production Overheads absorbed 1,09,200
Production Overheads paid during the year 91,000
Production Overheads Outstanding at the end of Year 7,775
Administration overheads paid during the Year 27,300
Selling Overheads incurred 31,850
Payment to Creditors 2,29,775
Payment received from Debtors 6,59,750
Depreciation of Machinery 14,739
Administration Overheads Outstanding at the end of year 2,225
Provision for doubtful debts at the end of the year 4,590
Required:
Write up accounts in the integrated 1ledger of BPR Limited and prepare a Trial balance.