It is a system of accounting under which separate ledgers are maintained for cost and financial accounts by Accountants. Under such a system the cost accounts restricts itself to recording only those transactions which relate to the product or service being provided. Hence items of expenses which have a bearing with sales or, production or for that matter any other items which are under the factory management are the ones dealt with in such accounts.
Principal Ledgers
Subsidiary books maintained under non-integrated system of accounting are known as Principal Ledgers.
The following are some of the subsidiary books maintained under interlocking system of accounting
- Stores ledger: It is used to record both the quantity and amount of receipts, issues and balance of materials and supplies. It consists all store accounts.
- Payroll and wage analysis book: It is used to record the wages. The basis for recording the transactions are (a) clock cards, (b) time tickets, and (c) piece work tickets.
- Job ledger: It is used to record the material cost, wages, and overheads incurred in respect of a job.
- Finished goods stock ledger: It is used to record the receipt of finished goods from production department, the sale and stock of finished goods both in terms of quantity and value.
- Standing order ledger: It is used to record overheads incurred.
- Debtors’ Ledger: It contains personal accounts of all trade debtors.
- Creditors’ Ledger: It contains personal accounts of all trade creditors.
Control Accounts
The following important accounts are maintained under non-integrated accounting system:
- General ledger adjustment account: It is also known as cost ledger control account or nominal ledger control account. In this accounts transactions with only one entry is recorded and contra appears in financial book. All transactions of income and expenditure which originate in the financial Accounts must be entered in the ledger for eventual transfer to Cost Accounts and total of this account will be equal to total of all the balance of the impersonal accounts.
On the credit side of this account are recorded
- Opening Balance of materials, work in progress and finished stock,
- Expenses of material, wages and overheads on the credit side,
- On the debit side returns of materials to the supplier,
- Sales income and
- On the debit side balancing entries of P&L account and closing stock.
- Stores ledger control account: It is debited with purchase of materials for the stores and credited with issues of material.
- Wages control account: In this account the wages accrued and paid and allocation of wages in this account are recorded.
- Work in progress control account: It includes of all direct materials, direct wages, direct expenses, special purchases and expenses.
- Finished goods stock ledger control account: This account represents finished goods stock ledger transactions in total form.
- Selling, distribution, and administration overhead control account: This account represents selling, distribution and administration overheads.