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Integrated Accounting System : An overview

Pankaj Pendse 
on 11 June 2012

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Integrated Accounting is a distinguished accounting system in which the accounts are integrated and only a single set of accounts are maintained. Essentially it avoids maintenance of Accounts under cost accounting & financial accounting. This enables a firm to eliminate separate Profit & Loss Accounts under financial accounting and cost accounting systems & only one Profit & Loss Accounts are prepared.

The benefits of Integrated Accounting System are as follows:

1. No need for reconciliation

As only single set of accounting records is kept, the need for reconciliation between the profits shown by the two records stands eliminated.

2. Simple to understand

The method is quite simple to understand and easy to operate. It tends to eliminate unnecessary complications.

3. Less Costly

The method avoids duplication of work & thus cost of operating this system is reduced. Hence the method can be treated as Cost Effective.

4. Cross Checking

There is a cross checking of various figures in cost as well as financial accounts. This ensures accuracy of figures of cost & financial data.

5. Availability of Cost & financial Data

The system assures that cost data becomes available promptly and regularly

6. Use of Mechanized Accounting Methods

Use of Mechanized Accounting System can be made.

7. Time Saving

The Integrated Accounting System can be considered as Timesaving Accounting System because it saves lot of time.

8. Holistic View

Integrated Accounting System gives a Holistic View about the accounting system of a company.

9. User Friendly

The Integrated accounting system is a user friendly system & can be understood even by a layman.

10. Saves Accountant’s Efforts

The Integrated Accounting Systems saves the accountants’ efforts as only the Integrated Accounting Systems are to be maintained.

As we know, cost & financial accounts are said to be interlocked, when independent set of books are maintained for each of them. These accounts are interlocked through control accounts maintained in the two sets of books. Cost Ledger Control Accounts is maintained in the financial books and General Ledger Adjustment Account is maintained in costing books. In this manner, connection between two sets of books is maintained. In costing books, all entries relating to assets are booked in General Ledger Adjustment Account as an accounting effect. However when it is desired to integrate the two trial balances into single trial balance,  the Cost Ledger Control Account and General Ledger Adjustment Account can be omitted because they are maintained on ‘contra’ principle.

Following accounts are maintained under the Integrated Accounting System as a regular Practice:

a. Stock Control Accounts including Raw material, WIP & Finished Goods

b. Cost of Sales Accounts to ascertain the cost of sales

c. Debtors & Creditors Control Account to ascertain the quantum of transaction connected with debtors & creditors

d. Prepaid Expenses & Outstanding Expenses Account to record the expenses which are due but not paid and paid but not due.

e. Direct Wages & Overhead Cost  Control Accounts to determine the flow of Direct Wages & Overheads

f. Cost Centre Account to be separately maintained for each department

g. Cash Account to record all cash receipts & cash Payments

The main benefit of integration is elimination of two sets of records. However due to some practical difficulties in implementation of accounting system , Interlocking of accounts is preferred.

 However Following are some practical limitations of Integrated Accounting System.

a. Size of Business enterprise may not suite for Integrated Accounting System

b. Lack of Qualified Personnel

c. Volume of transactions may be too much to cope up with the Integrated Accounting system

d. Lot of accounts to be maintained

e. Difficulties may arise about posting of certain items like discount allowed or bad debts incurred etc

Hence to sum up, we can state that Integrated Accounting System is a specialized type of accounting system which focuses on integration of cost & financial accounts and carries a sizable number of advantages coupled by a few practical limitations.




Category Accounts
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