Recording Differences Between Financial Accounting and Cost Accounting – Example 
This example illustrates how to record differences between financial accounting and cost accounting using accrual types.
In the example, a machine costs USD 9,000, and its legal life is 3 years (that is, the monthly depreciation is USD 250 in financial accounting), but in the company's point of view, the estimated useful life is 5 years (that is, the monthly depreciation is USD 150 in cost accounting).
The current monthly posting is as follows:
Debit |
Credit |
|
|---|---|---|
111000 - Plant and Machinery |
USD 250 |
|
645010 - Plant and Machinery Depreciation Expense |
USD 250 |
Procedure
To record the differences between financial accounting and cost accounting, proceed as follows:
In the Edit Chart of Accounts window, create two G/L accounts of type Expenditure: 645011 - Calculation Machinery Depr and 645012 - Calculation Interim Machinery Depr.
In the Accrual Types – Setup window, create an accrual type as follows:
Code
Name
Posting Acct
Accrual Calculation Acct
Accrual Calculation Interim Acct
01
Machinery Depr
645010
645011
645012
For cost accounting correction postings, you can create a monthly recurring posting, or you can manually create a journal entry every month.
G/L Acct/BP Code
G/L Acct/BP Name
Debit
Credit
645011
Calculation Machinery Depr
USD 150
645012
Calculation Interim Machinery Depr
USD 150
Result
In financial accounting, the depreciation expense is USD 250, while in cost accounting, the depreciation expense is USD 150. The difference between financial accounting and cost accounting is USD 100.
In the cost accounting reconciliation report, you can find the following records:
Financial Accounting |
Cost Accounting |
|||||||
|---|---|---|---|---|---|---|---|---|
P/L |
Company-Related |
Cost Accounting Correction |
Cost Accounting P/L |
|||||
Accounts |
Expense(LC) |
Revenue(LC) |
Expense(LC) |
Revenue(LC) |
Expense(LC) |
Revenue(LC) |
Expense(LC) |
Revenue(LC) |
645010-Plant and Machinery Depreciation Expense |
USD 250 |
USD 0 |
USD 250 |
USD 0 |
||||
645011-Calculation Machinery Depr |
USD 150 |
USD 0 |
USD 0 |
USD 150 |
||||
645012- Calculation Interim Machinery Depr |
USD -150 |
USD 0 |
USD -150 |
USD 0 |
||||
USD 250 |
USD 0 |
USD 0 |
USD 0 |
USD 100 |
USD 0 |
USD 150 |
USD 0 |
|
Total |
USD -250 |
USD 0 |
USD -100 |
USD -150 |
||||
Financial P/L |
USD -250 |
Non-Operating P/L |
USD -100 |
Cost Accounting P/L |
USD -150 |
|||