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

Which of the following is the main reason why the profit shown by cost accounts usually differs from the profit shown by financial accounts?

Profits differ mainly because financial accounts record items such as interest, losses on sale of assets and appropriations that cost accounts exclude, and because stock valuation and overhead treatment can differ. Reconciliation explains these differences and checks the accuracy of both sets of books.

  1. ACost accounts are maintained only for selling activities
  2. BFinancial accounts include items of income and expense that cost accounts exclude or treat on a different basisCorrect
  3. CCost accounts record only actual figures and ignore normal costs
  4. DFinancial accounts never record stock valuation

Explanation

Financial accounts record all incomes and expenses of the entity, including purely financial items, while cost accounts exclude some of them and may value stock or charge overheads differently. Hence the two profits differ and need reconciliation. Option C is wrong because cost accounts often use normal costs, not only actuals.

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