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

Why is the Memorandum Reconciliation Account described as 'memorandum'?

It is called memorandum because it is prepared outside the double-entry ledgers of both cost and financial accounts. It merely lists the items causing differences between the two profits, without altering any account balance, and is not restricted to notional items or to auditors.

  1. AIt is not part of the double-entry system of either set of booksCorrect
  2. BIt is prepared only by the statutory auditor
  3. CIt records only notional costs
  4. DIt is prepared monthly under Cost Accounting Standards

Explanation

The account is a statement prepared outside the ledger to explain differences between the two profits. It does not form part of the double-entry books of cost or financial accounts, so no ledger balances are changed. The other options are incorrect: it is not limited to notional items nor mandated to be monthly or by auditors.

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