Business Analytics

Integrated and Non-Integrated Accounting Systems—Part 2

Written by Analytix Editorial Team | September 6, 2022

Accounting systems have become integral to the success of modern businesses. An accounting system that is relevant to the business can bring multiple benefits, including:

  • Improved operations
  • More efficiencies
  • Added value to client deliverables
  • Cost savings
  • Greater profitability

Integrated accounting or Non-Integrated accounting: Which one does your business need?

Making the correct choice can be difficult for businesses, including startups that may still be reviewing business plans, growth goals, and, most importantly – customer deliverables and work processes.

Accounting and bookkeeping constitute the foundation of business financials and financial management. Therefore, it is essential to understand financials instead of following the learn-as-you-go approach, which leaves room for errors.

A Brief Understanding of Cost Accounting and Financial Accounting

  • Integrated accounting systems maintain cost accounting data and financial accounting data in the same books.
  • Non-Integrated accounting systems maintain this data in two different sets of books.

Cost accounting records and reports update information periodically so business decision-makers can better analyze and manage costs. Cost accounting data tracks costs and expenses from the beginning of a project to its completion, thus accurately measuring the actual cost incurred. It is helpful for controlling costs, analyzing efficiencies of resources, projecting plans, and determining the selling price.

On the other hand, financial accounting data includes financial transactions for every financial period, thus making it central to preparing a business’s financial statements. Financial accounting data includes balance sheet information, cash flow statement, income statement, etc., all of which enable businesses to understand the financial status of the business.

Integrated Accounting System

Integrated accounting is a system of accounting where the integrated ledger holds information for both financial and cost-based transactions. There is a single set of books for both kinds of transactions.

How does this help?

This helps businesses eliminate separate entries for purchase accounts while still recording the information relevant to sections on stores, work in progress, or overhead accounts. Information related to the payroll is recorded in the wages control account.

Benefits of Integrated Accounting

  • It helps businesses determine costs, losses, and gains and prepare the balance sheet thanks to this information.
  • Provides detailed information about costs associated with production, wages, tasks and deliverables finished, tasks and deliverables that are in-progress, and costs tied to business operations.
  • It empowers management leaders to control business costs, bring down liabilities, and manage assets more efficiently.

Non-Integrated Accounting Systems

Also known as the interlocking accounting system, it requires cost accounting details to be recorded separately from the financial accounting details. Businesses using interlocking accounting have two profit balances: the cost-profit and the financial profit.

Contrary to integrated accounting, non-integrated accounting presents two distinct sets of financial accounting and cost accounting data. Thus, there are two different ledgers to note cost accounting transactions and financial accounting transactions. Non-integrated accounting systems are also called cost ledger accounting systems.

What does it entail?

Non-integrated accounting requires the maintaining of principal accounts, while the book of Cost Accounts must contain journal entries. Because the details of cost accounts and financial accounts are recorded separately, timely and consistent reconciliation is a must.

Benefits of NonIntegrated Accounting system

  • The non-Integrated accounting system illustrates the importance of cost accounting as a function.
  • It helps analyze business costs by operations or functions, such as processes and system costs, job costs and expenses, and business administration.
  • Because there are two different sets of books, details are recorded diligently without losing any information.

Choosing professional assistance, such as that provided by accounting outsourcing agencies, when assessing and implementing accounting systems can help businesses maintain better financial health while also streamlining business operations.

Next Steps

Written by

Analytix Editorial Team
Analytix Editorial Team

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