Cost and Management Accounting · Cost Accounting Systems

Integral and Non-Integral Accounting Systems

Updated 4 October 2026 · Fact-checked

In an integral system, one set of books records both financial and cost transactions, so no reconciliation is needed. In a non-integral system, cost and financial accounts are kept separately and linked through control accounts and reconciliation. To solve questions, pass the entries in the right ledger, then prepare the required accounts.

Understand Integral and Non-Integral Accounting Systems

Every business needs financial accounts to report profit to owners and the law. It also needs cost accounts to know what each product or job costs. The question is how to keep both sets of records.

In the non-integral system, you keep two separate sets of books. Financial accounts are kept in the financial ledger. Cost accounts are kept in a cost ledger. Each has its own entries, so the profit shown by the two can differ. You then prepare a reconciliation statement to explain the difference.

In the integral (integrated) system, you keep one set of books for both purposes. Each transaction is recorded once, with the cost element shown in the same account. For example, materials purchased go to a Stores Ledger Control Account, wages go to a Wages Control Account, and so on. Because there is only one profit figure, no reconciliation is needed.

The integral system saves duplication of effort and gives quicker information. But it needs a well-designed chart of accounts and trained staff. The non-integral system is easier to set up but duplicates work and needs reconciliation.

Most exam questions give a list of transactions and ask for journal entries or ledger accounts. You must know which account to debit and credit. Under the integral system, you use accounts such as Stores Ledger Control A/c, Wages Control A/c, Work-in-Progress Control A/c, Finished Stock Control A/c, Cost of Sales A/c and Costing P&L A/c. Under the non-integral system, the cost ledger uses a General Ledger Adjustment Account (Cost Ledger Control Account) in place of the financial accounts.

Key rules to remember

Integral system: purchase of materials: Stores Ledger Control A/c Dr. ; To Creditors / Bank A/c; Financial and cost entries combine in one entry.
Integral system: issue of materials: Work-in-Progress Control A/c Dr. (direct) ; Factory (Production) Overhead Control A/c Dr. (indirect) ; To Stores Ledger Control A/c; Direct materials go to WIP; indirect materials go to overhead.
Integral system: wages: Wages Control A/c Dr. ; To Bank, Provident Fund, Employees' State Insurance, Tax payable A/c. Then: WIP Control A/c Dr. / Overhead Control A/c Dr. ; To Wages Control A/c; Gross wages are debited to Wages Control. Deductions are credited to the respective liability accounts.
Integral system: overhead absorption and under/over absorption: WIP Control A/c Dr. ; To Overhead Control A/c (absorbed). Difference in Overhead Control A/c is transferred to Costing P&L A/c; Under-absorbed overhead is a debit balance, so it is a loss. Over-absorbed overhead is a credit balance, so it is a gain.
Integral system: completion and sale: Finished Stock Control A/c Dr. ; To WIP Control A/c. Then: Debtors Dr. ; To Sales A/c. And: Cost of Sales A/c Dr. ; To Finished Stock Control A/c; Sales is recorded at selling price. Cost of sales is recorded at cost. Both close to Costing P&L A/c.
Non-integral system: cost ledger entries: Stores Ledger Control A/c Dr. ; To Cost Ledger Control A/c (General Ledger Adjustment A/c); Cash, debtors, creditors and fixed assets are not in the cost books. Their effect is shown through the Cost Ledger Control A/c, which takes the other side of every cost entry that would otherwise involve them.
Non-integral system: reconciliation: Profit as per cost accounts ± differences = Profit as per financial accounts; Differences arise from items that appear in only one set of books, and from different valuation of stock.

How to solve Integral and Non-Integral Accounting Systems questions

Use this order for any question on the integral or non-integral system.

1Read the question and note which system is asked: integral, non-integral, or the difference between the two.
2List all transactions in order. Mark each as material, labour, overhead, production, sales or financial (cash, debtors, assets).
3Decide the accounts to use. For integral, use the control accounts. For non-integral, show only cost items in the cost ledger and send the other side to the Cost Ledger Control A/c.
4Pass each journal entry with a short narration. Keep gross wages, direct and indirect splits and overhead absorption clearly separate.
5Post to ledger accounts if asked. Open Stores, Wages, Overhead, WIP, Finished Stock, Cost of Sales and Costing P&L accounts.
6Work out under- or over-absorbed overheads and transfer them to Costing P&L A/c.
7Close the books: prepare the Costing P&L A/c (integral) or the trial balance of the cost ledger (non-integral). Check that debits equal credits.

Quickest way: Entry-pattern shortcut

When to use it: Use this when you are short of time, especially in MCQs and journal entry questions.

For MCQs, first spot the key word. Words like 'no reconciliation needed' or 'single set of books' mean integral. 'Cost Ledger Control A/c' or 'General Ledger Adjustment A/c' means non-integral.
Remember the flow: Stores, then WIP, then Finished Stock, then Cost of Sales, then Costing P&L. Each step debits the next account and credits the previous.
Treat direct items as going to WIP and indirect items as going to Overhead Control. Do this before anything else.
In written answers, write each entry as 'Dr. / To' on separate lines with a one-line narration. Step marks are given for each correct entry.
At the end, check that the Costing P&L balance equals the profit you would compute from sales minus cost of sales minus under-absorbed overhead and other expenses.

Common mistakes in Integral and Non-Integral Accounting Systems

Debiting wages net of deductions instead of gross wages to Wages Control A/c.
Students look only at the cash paid.
Fix: Debit gross wages to Wages Control. Credit bank for net pay and the deduction accounts for the rest.
Recording sales at cost in the Finished Stock account.
Students forget that sales and cost of sales are separate entries.
Fix: Record sales at selling price against debtors. Record cost of sales separately at cost from Finished Stock.
Passing financial items such as cash or debtors in the non-integral cost ledger.
Students mix the two ledgers.
Fix: In the cost ledger, credit or debit the Cost Ledger Control A/c in place of cash, debtors and creditors.
Transferring absorbed overhead to Costing P&L instead of the under- or over-absorbed amount.
Students confuse the absorbed amount with the difference.
Fix: Absorbed overhead goes to WIP. Only the balance left in the Overhead Control A/c goes to Costing P&L.
Saying that no reconciliation is ever needed in any system.
Students over-learn the merit of the integral system.
Fix: State clearly that reconciliation is not needed in the integral system, but is needed in the non-integral system.
Treating indirect materials as direct and debiting WIP.
Students skip the direct and indirect classification.
Fix: Check the wording. Indirect materials, indirect wages and similar items are debited to Overhead Control.

Worked examples

Example 1

Pass journal entries under the integral system for the following: (a) Materials purchased on credit ₹2,00,000. (b) Materials issued: direct ₹1,20,000, indirect ₹15,000. (c) Gross wages ₹80,000, of which direct ₹60,000 and indirect ₹20,000; deductions are ₹8,000 and net wages are paid in cash. (d) Factory overheads absorbed ₹40,000. Actual factory overheads incurred other than materials and wages are ₹22,000, paid in cash.

Show the solution

(a) Stores Ledger Control A/c Dr. ₹2,00,000; To Creditors A/c ₹2,00,000.
(b) Work-in-Progress Control A/c Dr. ₹1,20,000; Factory Overhead Control A/c Dr. ₹15,000; To Stores Ledger Control A/c ₹1,35,000.
(c) Wages Control A/c Dr. ₹80,000; To Deductions Payable A/c ₹8,000; To Bank A/c ₹72,000. Then: Work-in-Progress Control A/c Dr. ₹60,000; Factory Overhead Control A/c Dr. ₹20,000; To Wages Control A/c ₹80,000.
(d) Factory Overhead Control A/c Dr. ₹22,000; To Bank A/c ₹22,000. Then: Work-in-Progress Control A/c Dr. ₹40,000; To Factory Overhead Control A/c ₹40,000.
Check overhead: debits are ₹15,000 + ₹20,000 + ₹22,000 = ₹57,000. Credit is ₹40,000. Balance is ₹17,000 debit, which is under-absorbed.
Transfer: Costing Profit and Loss A/c Dr. ₹17,000; To Factory Overhead Control A/c ₹17,000.

Answer: Entries are as shown above. Under-absorbed overhead of ₹17,000 is transferred to Costing P&L A/c. WIP is debited with ₹1,20,000 + ₹60,000 + ₹40,000 = ₹2,20,000.

Example 2

Under the non-integral system, pass entries in the cost ledger for: (a) Materials purchased ₹1,50,000. (b) Materials issued to production ₹1,10,000. (c) Wages paid ₹60,000 (all direct). (d) Factory overheads incurred ₹30,000 and absorbed ₹35,000. (e) Goods completed at cost ₹2,00,000. (f) Goods sold at cost ₹1,60,000 for ₹2,10,000.

Show the solution

(a) Stores Ledger Control A/c Dr. ₹1,50,000; To Cost Ledger Control A/c ₹1,50,000.
(b) Work-in-Progress Control A/c Dr. ₹1,10,000; To Stores Ledger Control A/c ₹1,10,000.
(c) Wages Control A/c Dr. ₹60,000; To Cost Ledger Control A/c ₹60,000. Then: Work-in-Progress Control A/c Dr. ₹60,000; To Wages Control A/c ₹60,000.
(d) Factory Overhead Control A/c Dr. ₹30,000; To Cost Ledger Control A/c ₹30,000. Then: Work-in-Progress Control A/c Dr. ₹35,000; To Factory Overhead Control A/c ₹35,000. Over-absorbed ₹5,000 is a credit balance: Factory Overhead Control A/c Dr. ₹5,000; To Costing P&L A/c ₹5,000.
(e) Finished Goods Control A/c Dr. ₹2,00,000; To Work-in-Progress Control A/c ₹2,00,000.
(f) Cost of Sales A/c Dr. ₹1,60,000; To Finished Goods Control A/c ₹1,60,000. Then: Cost Ledger Control A/c Dr. ₹2,10,000; To Costing P&L A/c ₹2,10,000. Then: Costing P&L A/c Dr. ₹1,60,000; To Cost of Sales A/c ₹1,60,000.
Costing P&L A/c in one place: Credit side: Sales ₹2,10,000 and over-absorbed overhead ₹5,000, total ₹2,15,000. Debit side: Cost of sales ₹1,60,000. Balance, profit: ₹2,15,000 − ₹1,60,000 = ₹55,000.

Answer: Entries are as shown. Costing P&L A/c: Cr. Sales ₹2,10,000 and over-absorbed overhead ₹5,000; Dr. Cost of sales ₹1,60,000; profit ₹55,000. WIP balance is ₹1,10,000 + ₹60,000 + ₹35,000 − ₹2,00,000 = ₹5,000.

Exam tips

Learn the difference between the two systems in a table-like list of points: ledgers, reconciliation, duplication, accounts used. A 4 to 5 point answer scores full marks.
In journal entry questions, write narrations and show direct and indirect items separately. Step marks are awarded per entry.
Always compute under- or over-absorbed overhead and transfer it to Costing P&L A/c. Questions often hide this step.
For MCQs, look for the words 'Cost Ledger Control A/c' (non-integral) or 'single set of books' (integral).
In theory questions, give both merits and demerits when asked for an evaluation. Mention that integral accounting needs trained staff and a good chart of accounts.

Practice questions from Cost Accounting Systems

Integral and Non-Integral Accounting Systems in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateIntegral and Non-Integral Accounting Systems

Integral and Non-Integral Accounting Systems: frequently asked questions

What is the main difference between integral and non-integral accounting?

Integral accounting keeps cost and financial records in one set of books, so no reconciliation is needed. Non-integral accounting keeps two separate sets of books, so you must reconcile the profits. The non-integral system also needs a Cost Ledger Control A/c in the cost books.

Why is no reconciliation needed in the integral system?

Because each transaction is recorded only once in the same set of books. There is only one profit figure, so there is nothing to reconcile. This is the main merit of the system.

What is the Cost Ledger Control Account?

It is the account in the cost ledger that replaces all financial accounts, such as cash, creditors and debtors. It is also called the General Ledger Adjustment Account. It makes the cost ledger self-balancing.

Where do I transfer under-absorbed overhead?

Transfer the balance of the Factory Overhead Control A/c to the Costing Profit and Loss A/c. Under-absorbed overhead is a debit, so it reduces profit. Over-absorbed overhead is a credit, so it increases profit.