The Objective of Management Accounts
The explanations for having management accounts are as follows:
1. Examine on the accuracy
They supply a verify on the accuracy of entries made within the private accounts within the gross sales ledger and buy ledger. It is rather simple to make a mistake in posting entries, as a result of there is perhaps lots of of entries to make. Figures may get transposed. Some entries could also be omitted altogether, in order that an bill or a fee transaction doesn’t seem in a private account because it ought to. By evaluating:
o The whole stability on the debtors account with the whole of particular person balances on the non-public accounts within the gross sales ledger.
o The whole stability on the collectors account with the whole of particular person balances on the non-public accounts within the buy ledger.
It’s attainable to determine the truth that errors have been made.
2. Location of errors
It might additionally help within the location of errors, the place posting to the management accounts are made each day or weekly, and even month-to-month. If a clerk fails to file an bill or a fee in a private account, or makes a transaction error, it will be a formidable process to find the error or errors on the finish of a 12 months, say, given the hundred or hundreds of transactions throughout the 12 months.
Through the use of the management account, a comparability with the person balances within the gross sales or buy ledger may be made for each week or day of the month, and the error discovered way more rapidly than if accounts didn’t exist.
3. For inside verify
The place there’s a separate of clerical bookkeeping duties, the management account offers an inside verify. The particular person posting entries to the accounts will act as a verify on a distinct one who job it to submit entries to the gross sales and buy ledger accounts.
4. Extra merely and rapidly
To supply debtors and collectors balances extra rapidly for producing a trial stability or stability sheet. A single stability on a management account is clearly anticipated easier and rapidly than many particular person balances within the gross sales or buy ledger.
This implies additionally that the variety of accounts within the double entry bookkeeping system may be stored all the way down to a manageable dimension, for the reason that private accounts are memorandum accounts solely and the management accounts as a substitute present the accounts required for a double entry system.
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