The non-integrated accounting system is an accounting method whereby accountants keep separate ledgers for cost and financial accounts.
In such a system, the cost accounts are limited to just tracking transactions that are related to the good or service being offered. Therefore, expenses related to sales, production, or indeed any other expenses that fall within factory management are the ones that are handled within such accounts.
The non-integrated system of accounts has the unique capacity to handle fictitious charges like rent or interest on money invested in the stock. The accounting of nominal rent makes it easier to compare factories. (some owned and some rented). Similar to how recognition of interest on cash tied up in stock could inform store and operations management of the funds that are being restricted due to stock holding
Non-Integrated Accounting System
In cost accounting the cost books are basically maintained under the following two systems:
I. Non-integral or non-integrated cost accounting.
2. Integral or integrated cost accounting.
When cost and financial transactions are maintained apart, the system is said to be non-integral. On the other hand, an accounting system is referred to as integrated or integral when cost and financial transactions are merged. Non-integral accounting systems retain distinct ledgers for cost and financial transactions.
Due to the removal of purchases, expenses, and balance sheet components like fixed assets, debtors, and creditors, non-integrated accounting systems have fewer accounts than financial accounting. A cost ledger control account is used to represent the items of accounts that are excluded.
The cost accounting department maintains the following cost ledgers:
1. Stores ledger: This ledger contains all stores’ accounts.
2. Work-in-progress ledger: All costs of material, wages and overhead for each job or manufacturing in progress are pasted to the respective job accounts in this ledger.
3. Finished goods/stock ledger: This ledger records details of finished goods and jobs.
4. Cost ledger: This is the main ledger and records impersonal accounts. that is. accounts relating to income and expenditure. The following accounts are maintained in the cost ledger.
5. General ledger adjustment account – It is sometimes referred to as a nominal ledger control account or a cost ledger control account. Transactions with just one entry are recorded in this account, and the contra appears in the financial book. For eventual transfer to cost accounts, all income and expense transactions that start in financial accounts must be recorded in the ledger. The sum of this account will be equal to the total of all the balance in impersonal accounts.