After reading this article you will learn about the Planning Accounts details for Cost Accounting Records.
Expense/Income Accounts in some order:
A portion of General Ledger or a separate ledger known as Nominal Ledger or Profit & Loss Ledger of a company contains various accounts of revenue and expenditure (i.e. income/expense or profit/loss accounts) With the advent of computerisation, these accounts are generally opened in an alphabetical order.
It, however, creates problems in grouping these accounts not only for meeting statutory requirements, like:
(i) Schedule VI—Requirements as to Profit & Loss Account; and
(ii) Various Cost Accounting Records Rules, prescribed under Section 209 (1)(d) of the Companies Act, 1956, but also for taking important management decisions, like expenses on raw materials, publicity, commissions etc.
After considering various alternatives, it is suggested that the revenue/expenditure accounts be opened in the order as laid down in various Proformae prescribed under the relevant Cost Accounting Records Rules.
For the purpose of arranging profit/loss accounts in a systematic manner, they may be opened in an order, on the lines described hereunder.
1. Raw Materials (R.M.) consumed
2. Process Materials consumed.
[Major raw materials/process materials accounts will be opened individually and for rest of the raw materials/process materials one account i.e. other raw materials/process materials account may be opened. In practice, separate accounts for stocks (opening and closing), purchases and sales of various materials may be opened. The amount of materials consumption will be the resultant amount based on the effect of these various accounts. Wherever financial and cost accounts are integrated, raw materials/process materials consumption account may be directly opened. This also applies to colours and chemicals, packing materials, stores & spares etc.]
3. Packing Materials Consumed.
4. Salaries, Wages & Fringe Benefits.
5. Company’s Contribution to Provident Fund & other Funds.
6. Employee Welfare Expenses.
7. Stores and Spare Parts.
8. Power, Fuel & Water.
9. Repair—Plant & Machinery (P & M), Repairs—Buildings, Repairs—Others
10. Other Direct Expenses
12. Rates and Taxes.
16. Commission, discounts, royalties and
17. Handling, packing, carriage & freight for deliveries.
18. Other expenses (to be specified).
19. Lease Rent Paid.
22. work-in-process (W.I.P) stocks- Difference- (Operating & Closing)
23. Finished Goods Stocks- Difference- (Operating & Closing)
1. (a) Sales of products
(b) Sales of Bye-Products, Waste, Scrap etc.
(c) Sales of Services
2. Other Incomes (to be specified)
An alphabetical index may be provided in the beginning of the Ledger for easy identification of Heads of Accounts and their folios. If desired, Income Accounts e.g. Sales etc. can be opened first in the Ledger or any other suitable order may be decided for opening various accounts in the Ledger.
In actual practice, a number of accounts will be opened under various heads enumerated under expense items from Nos. 3 to 23 and income heads Nos. 1 to 3 above. The list may be expanded or shortened as per the requirements of a company/unit.
Generally, product-wise sales quantities and their net sales realizations pose difficulties. In debit notes/credit notes, commissions and rebates are given as a limp sump, without mentioning the products sold or returned.
A total discount amount is mentioned in an invoice for numerous types of products. So, calculation of discounts (i.e. net sales amounts) for different products is to be done.
Also, quantities (products) of sales invoices should tally:
(i) With factory deliveries, size-wise, brand-wise, and
(ii) With excise records Excise duty paid (net) should tally with size-wise, brand-wise deliveries and invoices. Otherwise, excise reconciliation should be prepared for properly charging the same.
In case of manufactured products using materials imported under Advance Licence Scheme, sales quantities and values should be determined separately. Similarly, sales quantities and values of products exported under Duty Drawback should be worked out.
There is a practice in some companies to show inflated sales figures, whereas some companies are deducting even some of the selling expenses like commission on sales from sales turnover.
For cost records purpose, a uniform system should be followed by all companies for arriving at sales figures as indicated below:
(a) Gross Sales: (Inland) Less,
i. Excise Duty (on sold quantity),
ii. Sales Tax including Central Sales Tax,
iii. Credit Notes—Goods return,
(b) Analysis of product-wise export realizations:
1. CIF based on invoices, FOB based on bank certificates.
2. Details of commission paid in foreign currency to be analysed by each transaction/ invoice, and added back to FOB to arrive at FOB Sales realisation for the purpose of cost records.
Selling and Distribution Expenses:
In order to depict a clear picture of selling and distribution expenses, it is essential to include expenses like the following in the above head:
Trade Discounts, Turnover Incentives, Rebates for claims, Rate difference etc. not identifiable with product.
i. Surcharge on Sales Tax (Additional S.T.)
ii. Turnover Tax (Sales Tax)
iii. Brokerage & Commission on sales
i. Special Packing cost, if any.
ii. Textile Committee cess or similar Cess on a product.
iii. Octroi Duty
iv. Outside Mukadami, freight & forwarding charges to the extent borne by the Company
v. Transit Insurance on finished products
vi. Delivery Van Expenses as they are not recoverable and are borne by company.
The treatment in cost records for various items under the above head in the financial accounts should follow a uniform pattern, like the one indicated below:
Coding of Accounts:
Where the alphabetical or other order has been in vogue and it is not possible to change the order for opening the accounts for one reason or another, then the other alternative is to make the coding of profit and loss accounts in such a way as to make it in line with the suggested order.
When the revenue accounts are opened in a ledger in the suggested order and trial balance is prepared with the group totals, it would automatically present a clear picture of different items of expenses and revenue. In turn, it would greatly facilitate the-analysis of expenses/incomes, determination of profit/loss activity wise, product-wise etc. Further, if functional coding is followed in sub-codes the cost centre-wise analysis will be available.
02 represents Administration
03 represents Selling & Distribution and 067 indicates Rent, then
067 gives Rent of the company as a whole or for unit.
02067 gives Rent of administrative building,
03067 gives Rent of sales office premises.
Analysis of Expenses:
From the various cost centre-wise expense statements prepared by Time Office, Raw Materials Stores, General Stores, Electrical and other Departments and received by the Costing Department, the data are entered in Costing Details Register/Cost Analysis Register/Expense-Income Analysis Register. In may be done on monthly basis.
Only companies, having an integrated financial and costing system, are passing monthly entries in their accounts for materials and stores consumption etc. At the time of scrutiny of the expenses analysis, the totals should be first tallied with the balances of the respective accounts in the main ledger.
Some payments made by vouchers from the Head Office or Factory Office might not have been included in above analysis. For example, payments to some employees might not have found place in the Wages/Salaries Statements sent by the Time Office.
This tallying work may be done in a separate Cost Analysis Register or directly on Computer. Even this tallying work can be avoided, if all revenue vouchers arc coded at source with sub-codes and fed in financial package, it will automatically generate consolidated data.
For most expense heads, the analysis would entail two requirements:
First, total expenditure incurred for that purpose would have to be determined, whether it is under one account-head or not. For example, Power generation statement would not only include fuel consumption hut also depreciation, insurance and up-keep of Generating Sets.
Second, extent to which different departments have utilised that service or have been benefited by it, would have to be ascertained. It can be done by actual measurement or by technical estimate.
Cost Centres and their Order:
Analysis of expenses/incomes should be made cost centre-wise, taking into consideration the requirements as per the latest Cost Accounting Records Rules. Various cost centres may be arranged in one fixed order.
A. Production Processes/Production Cost Centres.
B. Utilities (or Direct Services) Cost Centres.
C. Service Centres-Production/Direct.
D. Other Service Centres.
E. General Administration/Departments.
F. Selling Cost Centres.
G. Distribution Cost Centres.
H. Non-cost items for Reconciliation.
From the list of Cost Centres vide Annexure below, companies/units may have cost centres, as per their requirements and accordingly accounts may be opened in that order.
Different Cost Centres:
Cost Centres will widely differ in the analysis of wages paid at Factory and salaries paid thereat.
Hence there will be different cost centres in the two statements:
(i) Wages at Factory
(ii) Salaries at Factory.
Similarly, consumption of stores will be analysed according to the importance of stores items and amount of stores consumption. Hence cost centres will differ for the Statement of Analysis of Stores Consumption than Power Consumption. The above rule will apply to other analysis of expenses and incomes as well. But the Final Control Chart will comprise of the accepted main Cost Centres for the Unit/Division.
Basic Records at Units:
Basic records of materials consumption; expenses with allocation to cost centres and products; data on production of goods; utilities; and wastages and further details of quantity tally both in quantity and value, are to be maintained at the Unit/Factory.
Their monthly statements with quarterly and annual summaries should be submitted to the Costing Department after reconciliation as to both quantity and value with excise registers, financial accounts and other records.