# Integrated and Non-Integrated Accounting Systems
## The Two Systems Defined
### Non-Integrated System
Also called: Non-Integral System, Interlocking System, Cost Ledger Accounting System
Two separate sets of books are maintained:
- One set records cost transactions
- One set records financial transactions
Result: Two different figures of profit/loss → Reconciliation is required.
### Integrated System
Also called: Integral System
Only one set of books records both cost and financial transactions.
Result: One figure of profit/loss → No reconciliation needed.
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## Comparison: Integrated vs. Non-Integrated
| Basis | Non-Integrated | Integrated |
|---|---|---|
| Sets of books | 2 (separate) | 1 (combined) |
| Cost Ledger | Maintained separately | Not maintained separately |
| Profit/Loss figures | 2 different figures | 1 figure |
| Reconciliation | Required | Not required |
| Cost | Expensive (duplication of recording) | Economical |
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## Advantages of Integrated Accounting
1. Economical — only one set of books; eliminates duplication of recording
2. No reconciliation needed — single profit figure eliminates disagreements
3. No delay in information — all monetary transactions instantly available
4. Suitable for mechanized/computerized accounting
5. Better coordination among different accounting department heads
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## Essential Prerequisites for Integrated Accounting
| Requirement | Detail |
|---|---|
| Extent of Integration | Management must decide the level — up to prime cost, factory cost, or full integration of all accounts |
| Coding System | A uniform coding system must be developed covering both financial and cost transactions |
| Accounting Policy | Policies for accruals, prepaid expenses, and adjustments must be laid down in advance |
| Coordination | Perfect coordination between staff responsible for financial and cost aspects |
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## Why Reconciliation is Needed (Non-Integrated Systems)
Two separate books produce two profit figures that often differ due to:
- Items appearing in financial accounts but not in cost accounts (e.g., dividend received, interest paid)
- Items appearing in cost accounts but not in financial accounts (e.g., notional rent, notional interest)
- Differences in depreciation rates used in the two systems
- Differences in stock valuation methods
### Direction of Adjustment in Reconciliation
| Item | Adjustment to Reconcile |
|---|---|
| Income in FA only | Add to cost profit |
| Expense in FA only | Deduct from cost profit |
| Notional charge in CA only | Add back to cost profit |
| Higher depreciation in CA | Add back to cost profit |
| Lower depreciation in CA | Deduct from cost profit |