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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Which of the following is a reason for a difference between profit shown by cost accounts and financial accounts?

Financial accounts include purely financial items such as interest on investments, whereas cost accounts omit them. Because these items affect only the financial profit, the two profit figures differ until they are reconciled.

  1. ABoth sets of books use the same stock valuation method
  2. BBoth exclude all purely financial incomes and expenses
  3. CFinancial accounts include items such as interest on investments, while cost accounts omit themCorrect
  4. DBoth record the same depreciation figure always

Explanation

Cost accounts leave out purely financial items (interest received, losses on sale of investments, income tax appropriations) that financial accounts include. This is a classic cause of difference. The other options describe situations where no difference would arise.

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