CMA Intermediate · Cost Accounting

Cost Book-Keeping for CMA Intermediate Cost Accounting

Cost book-keeping is the method of recording cost transactions in ledger accounts so that cost records can be tied to financial records. You solve problems by identifying the system (integral or non-integral), passing journal entries for material, labour and overheads, posting to ledgers, and reconciling profits where two sets of books exist.

What this chapter covers

Cost book-keeping shows how the cost figures you learn in other chapters are actually recorded. Material, labour and overheads flow into Work-in-Progress, then into Finished Goods, then into Cost of Sales. Each stage has a ledger account and a journal entry. The chapter teaches you to follow that flow with debits and credits.

There are two systems. In a non-integral system, cost accounts are kept separately from financial accounts, joined by a Cost Ledger Control Account (also called General Ledger Adjustment Account). In an integral system, one set of books serves both purposes, so no control account and no reconciliation are needed. A third skill is reconciliation: explaining why profit in cost books differs from profit in financial books.

This chapter connects to material, labour, overhead, job and process costing, because those chapters give you the figures that you post here. Questions often combine them: a problem may give stores data, wages data and overhead absorption, and ask for ledger accounts or a cost sheet. If you are weak here, you also lose time in every costing problem that needs a clean flow of costs.

This chapter is largely mechanical. Once you know which account is debited and credited for each transaction, entries and ledger problems follow a fixed pattern, and step marks are easy to earn even if one figure goes wrong. It appears as journal entry questions, ledger account problems and reconciliation statements, and it can also be tested in the compulsory MCQ section through short questions on which account is debited, where an item is posted, or whether an item causes a profit difference. Regular practice improves your accuracy.

Cost Book-Keeping: topics in the order to study them

1Cost Ledgers and Cost Control AccountsStart here to learn the ledgers, the control accounts and the basic idea of two sets of books, since every later topic uses them.
2Integral and Non-Integral Accounting SystemsNext, understand how the two systems differ, because that decides which accounts and entries you use in any problem.
3Journal Entries for Material, Labour and OverheadsWith the systems clear, learn the standard entries for each cost element, including under and over absorption.
4Reconciliation of Cost and Financial AccountsStudy this after entries, as you need to know what each set of books records to explain the profit differences.
5Preparing Cost Accounts and Ledger Account ProblemsFinish with full problems that combine everything, so you practise the complete flow under exam conditions.

How to prepare Cost Book-Keeping

Treat this chapter as a skill to practise, not a theory to read. Work with pen and paper and keep the flow of costs in front of you.

Draw the cost flow once: Stores Control, Wage Control and Overhead Control into Work-in-Progress Control, then Finished Goods Control, then Cost of Sales and Costing Profit and Loss Account.
Learn the difference between the integral and non-integral systems, and write down which accounts exist only in the non-integral system.
Memorise the journal entries for material purchase, issue and return, wages payment and allocation, and overhead incurred, absorbed and under or over absorbed. Practise writing them without notes.
Solve ledger problems by first marking each given figure with the entry it creates, then posting. Tick each item off so nothing is missed.
For reconciliation, make a list of typical differences: items only in financial books, items only in cost books, and differences in stock valuation or overhead treatment. Practise starting from either profit figure.
Attempt two or three full past-style problems in a timed setting, writing narrations and clear account headings, then check balancing figures.
Finish by practising MCQs on which account is debited or credited and which items appear in reconciliation.

Common mistakes in Cost Book-Keeping

Using a Cost Ledger Control Account in an integral system.
Fix: Read the question for the system first. In an integral problem, use direct entries with cash, creditors and debtors and no control account.
Posting a transaction on the wrong side of an account, especially returns and under or over absorption.
Fix: Ask whether the account gains or loses value. Returns reverse the original entry. Under absorption is a loss and over absorption a gain.
Treating financial items such as interest, dividends or tax as costs.
Fix: Keep a checklist of purely financial items. These stay out of cost accounts and appear as reconciling items.
Adding a reconciliation item when it should be deducted.
Fix: For each item, decide whether it raised or lowered profit in the starting books. Reverse that effect to reach the other profit.
Skipping narrations and headings in ledger problems.
Fix: Give each account a clear title and a short narration. This helps earn step marks when a figure is wrong.
Not checking that accounts balance.
Fix: Close each account, make the totals agree and verify that the work-in-progress and finished goods balances match the data given.

Last-day revision: Cost Book-Keeping

Non-integral system keeps separate cost and financial books, linked by the Cost Ledger Control Account.
Integral system uses one set of books, so there is no control account and no reconciliation.
Material issued to production: debit Work-in-Progress Control, credit Stores Ledger Control.
Indirect material issued: debit Overhead Control, credit Stores Ledger Control.
Wages: gross wages go to Wage Control, then direct wages to Work-in-Progress and indirect wages to Overhead Control.
Overheads absorbed are debited to Work-in-Progress and credited to Overhead Control.
Under-absorbed overhead means actual is more than absorbed; over-absorbed means absorbed is more than actual.
Items of pure financial nature, such as interest received or income-tax paid, are not in cost accounts.
In reconciliation, start with the profit of one set of books and adjust each difference in the correct direction.
Starting from financial profit, add items that make cost profit higher (for example, items in cost books but not in financial books that add to profit) and deduct items that make it lower. Starting from cost profit, do the reverse.
Stock valuation differences: other things equal, a higher closing stock valuation gives a higher profit, and a higher opening stock valuation has the opposite effect, giving a lower profit.
Balance every ledger account and check that the control account totals agree with the subsidiary records.

Cost Book-Keeping practice questions

Cost Book-Keeping in other exams

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

Cost Book-Keeping: frequently asked questions

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

In the non-integral system, cost and financial accounts are kept separately and linked through a control account, so reconciliation is needed. In the integral system, one set of books serves both purposes, so the problem of reconciliation does not arise.

Which topic in Cost Book-Keeping should I study first?

Begin with cost ledgers and control accounts, then the two systems. These give the structure that the entries, reconciliation and ledger problems depend on.

Why does profit differ between cost and financial accounts?

Differences arise because some items appear only in financial books, some only in cost books, and because stock valuation and overhead treatment can differ. The reconciliation statement explains each difference.

How should I answer a ledger account problem in the exam?

Mark each data item with its entry, post to clearly titled accounts with short narrations, and balance every account. This format earns step marks even if a figure is wrong.