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CMA Intermediate · Cost Accounting · Reconciliation of Costing and Financial Profit

A memorandum reconciliation account is prepared mainly to:

A memorandum reconciliation account is prepared to explain the difference between profit shown by the cost accounts and profit shown by the financial accounts. It lists the items treated differently in the two sets of books and adjusts one profit to arrive at the other.

  1. AReplace the cost ledger with the financial ledger
  2. BExplain the difference between profit as per cost accounts and profit as per financial accountsCorrect
  3. CCompute the break-even point of the firm
  4. DRecord the issue of materials to production

Explanation

The memorandum reconciliation account is a statistical statement that starts with one profit figure and, after adjusting items of difference, arrives at the other. It is not part of the double-entry ledgers and does not replace them. It does not compute break-even or record material issues.

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