List of Advantages and disadvantages of interlocking and integrated system
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Answer:
Advantages of interlocking System:
In order to plan an accounting system we consider first whether the system should be interlocking or integral.
(i) The object of maintaining the cost and financial books are quite different. The purpose of cost accounting is controlling of expenditures and ascertainment of costs, while the purpose of financial accounting are controlling of personal accounts of debtors, creditors and financiers etc. and ascertainment of profit by differentiating capital and revenue expenditures.
Hence, interlocking system is necessary to fulfill two different objectives of financial and costing system separately.
(ii) While Cost Accountant is responsible for recording cost ledgers, Financial Accountant is responsible for financial ledgers only, hence no integration is possible.
(iii) The main objectives of the two types of accounting are different. The main purpose of financial accounting is to serve external people, but the objective of cost accounting is related to internal, management only.
(iv) Financial accounting is mostly based on historical cost that arises after happening of the event, but cost accounting does not restrict itself only to expose costs. The cost accounting includes both retrospective and anticipatory calculations, so it is to be kept separately.
(v) The main aim of financial accounts is to record the daily transactions without attaching any importance to control. But cost accounts through its detailed study assure control of materials, labour and overhead costs.
(vi) The financial accounts are to be kept according to the provisions of Companies Act and Income Tax Act. But cost accounts are kept voluntarily as per requirements of management and sometimes under Cost Accounting Record Rules.
(vii) Financial accounting provides information about the enterprise in a general way to all the interested people through its common financial statements. But under cost accounting separate reports are prepared for different levels and different decision-making areas of management. Hence no integration can perform a better result.
(viii) In big enterprises financial books are already overcrowded with hundreds of personal accounts, purchases, sales, revenue expenses, capital expenses etc. Costing books are also voluminous for handling transactions like consumption of material in work-in-progress or in overhead, wages in work-in-progress or in overhead, analysis of normal and abnormal items. Integration of two sets of books will be unwise.
Disadvantages of Interlocking System:
(i) Maintenance of two separate sets of books causes duplication of records of certain items— once in financial books and again in cost books.
(ii) Two sets of books cause two different profits due to existence of non-identical items under non-integrated accounting system. Reconciliation of cost and financial accounts become necessary.
(iii) Maintenance of two sets of books enhances cost.
(iv) When transactions are not large maintenance of two sets of accounts separately is an unnecessary voluminous task.
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