Integral Accounting System | Cost Accounting

In this article we will discuss about Integral Accounting System:- 1. Meaning of Integral System 2. Basic Features of Integral System 3. Essential Prerequisites 4. Practical Problems.

Meaning of Integral System:

Integral or Integrated system is a system of accounting under which only one set of account books is maintained to record both the Cost and Financial transactions. The system implies the merger of both cost and financial accounts in one set of books.


The two sets of account books merge into a composite system. CIMA, London defines Integral system as a system in which the financial and cost accounts are interlocked to ensure that all relevant expenditure is absorbed into the cost accounts.

The system of accounting has the following advantages:

(i) There is no need for reconciliation because there will be only one figure of profit or loss as there is only one set of books.

(ii) This system is economical because it avoids duplication of recording the transactions in two separate set of books.

(iii) Accounting information is readily available and the correctness of the data is automatically checked.

(iv) It enables the introduction of mechanised accounting.


(v) A better understanding exists among the staff.

Basic Features of Integral System:

(a) There is no need for cost ledger because all control accounts are maintained in the financial ledger.

(b) There is no need to open a Cost Ledger Control Account because both the aspects (i.e., debit and credit) of all transactions are recorded in respective accounts.

(c) Subsidiary ledgers i.e., Stores Ledger, Work-in-Progress Ledger and Finished goods ledger are maintained as is done in non-integrated accounting. In addition, a Sales Ledger (containing personal accounts for each customer) and a Purchase Ledger (containing personal accounts for each supplier) are also maintained.


Overhead ledger is maintained to contain separate accounts for factory, administration and selling and distribution overhead.

(d) A control account for each subsidiary ledger is maintained in the general ledger.

The important control accounts are as follows:

(i) Stores Ledger Control Account;


(ii) Work-in-Progress Ledger Control Account;

(iii) Finished Goods Ledger Control Account;

(iv) Wages Control Account;

(v) Factory Overhead Control Account;

(vi) Administrative Overhead Control Account;

(vii) Selling and Distribution Overhead Control Account;

(viii) Sales Ledger Control Account;

(ix) Purchase Ledger Control Account.

(e) The balances of overheads Control Accounts represent under or over absorption of overheads which are transferred to Profit and Loss Account.

(f) The profit or loss as per Profit and Loss Account is transferred to Profit and Loss Appropriation Account.

(g) The degree of integration must be determined in advance. Some business firms may integrate the cost and financial accounts up to the stage of prime cost or factory cost while other firms integrate the two completely.

(h) A suitable coding system is generally developed to serve the purposes of both cost accounts as well as financial accounts.

(i) There should be an agreed accounting procedure in respect of treatment of provision for accruals, prepaid expenses and other adjustments necessary for preparing interim accounts.

Essential Prerequisites for Integrated Accounting System:

The essential prerequisites for integrated system include the following:

(a) Degree of Integration:

The degree of integration of the two sets of accounts should be determined. It is the management which has to decide on full or partial integration. Full integration changes the entire accounting records.

(b) Suitable Coding System:

A suitable coding system must be developed to serve the accounting purposes of both financial and cost accounts.

(c) Accounting Policy:

An agreed routine with regard to the treatment of provision for accruals, pre-paid expenses, other adjustments necessary for the preparation of interim accounts.

(d) Co-ordination:

Prefect co-ordination should exist between the staff responsible for the financial and cost aspects of the accounts and an efficient processing of various accounting documents should be ensured.

Practical Problems Relating to Integrated Accounting System:

1. Give journal entries for the following transactions under integrated Accounting:

(i) Materials purchased on credit

(ii) Payment to Creditors

(iii) Issue of direct materials for production

(iv) Payment of wages and

(v) Charging wages for production.

2. Journalize the following transactions under integral Accounting System:

Integral Accounting System


3. Journalize the following transactions in the integrated books of accounts:

Journal Entry under Integral System of Accounting

4. Dutta Enterprises operates an integral system of accounting you are required to pass the journal entries for the following transactions and that took place for the year ended 30.06.2011. (Narrations are not required).

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