The reconciliation statement is prepared with an objective of reconciling the profit between cost and financial account. In place of reconciliation statement, memorandum reconciliation account can also be prepared.
For the sake of reconciliation profit shown by one set of account can be taken as a starting point. The profit taken as a starting point has to be adjusted for an ascertainment of profit of another set of book. If the starting profit is found to be more, because of any reason, then the related amount has to be subtracted. Similarly, if the profit, which is assumed as a starting, is less, then the related amount has to be added.
The following steps are involved in reconciling the profit between cost and financial account:
Step 1 : To begin with profit shown by any one set of account - cost or financial account.
Step 2 : To find out the reasons responsible for the disagreement of profit between two sets of
books.
Step 3 : To determine the addition or deduction items. (Due to any reason if the profit taken as
starting point is more, the related amount should be deducted and vice-versa)
Step 4 : To complete the Reconciliation Statement. (If the profit of cost account is taken as
starting point, it will be completed by showing the profit of financial account and vice-
versa.)
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