# Integrated Accounting System
## What it is
Integrated Accounts is a system of accounting in which cost and financial accounts are kept in the same set of books. Instead of running two parallel ledgers, a single unified set serves both purposes.
## Why it is used
- It fully meets the information requirements of both Costing and Financial Accounting.
- It provides the information needed to prepare the Profit & Loss Account and Balance Sheet as required by law.
- It helps exercise effective control over the assets and liabilities of the business.
## How it differs from Non-Integrated Accounts
The list of ledger accounts and the journal entries are the same as under the Non-Integrated system — with one key replacement:
| Aspect | Non-Integrated System | Integrated System |
|---|---|---|
| Linking account | General Ledger Adjustment A/c is used | The respective financial account itself is maintained |
| Journal entries | Debit/Credit the General Ledger Adjustment A/c | Debit/Credit the respective financial account |
So wherever a non-integrated entry would touch the General Ledger Adjustment A/c (a notional control account), the integrated entry instead debits or credits the real financial account (Bank, Debtors, Creditors, etc.).
## Features of the Integrated Accounting System
- A complete analysis of cost and sales is maintained.
- Complete details of all cash payments are kept.
- Complete details of all assets and liabilities are kept — the system does not use a notional account to represent impersonal accounts.
- All accounts needed to classify cost are used, but the Cost Ledger Control Account of the non-integrated system is replaced by the following real accounts:
- Bank Account
- Receivables (Debtors) Account
- Payables (Creditors) Account
- Provision for Depreciation Account
- Fixed Assets Account
- Share Capital Account
## Advantages of Integrated Accounts
| Advantage | Description |
|---|---|
| No need for reconciliation | Only one profit figure exists, so costing and financial profit need not be reconciled. |
| Less effort | A single set of books reduces manual work and simplifies accounting. |
| Less time-consuming | Information is readily available from the books of original entry, avoiding delays. |
| Economical process | Centralised accounting reduces costs and improves efficiency. |
## Essential Pre-requisites
Before adopting integrated accounts, the following must be in place:
| Pre-requisite | Requirement |
|---|---|
| Management's decision on integration | Decide the extent of integration — full merger, or only up to prime cost / factory cost. |
| Suitable coding system | Implement codes that serve both financial and cost accounting needs. |
| Agreed routine for adjustments | A clear routine for accruals, prepayments and other adjustments for interim accounts. |
| Coordination between departments | Perfect coordination between financial and cost accounting staff. |
| No separate cost ledger needed | A separate cost ledger is eliminated, but subsidiary ledgers are still required — Stores Ledger, Stock Ledger, Job Ledger. |