The explanations for having management accounts are as follows:
1. Test on the accuracy
They supply a test 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 likely to be lots of of entries to make. Figures would possibly get transposed. Some entries is likely to 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 entire stability on the debtors account with the overall of particular person balances on the non-public accounts within the gross sales ledger.
o The entire stability on the collectors account with the overall of particular person balances on the non-public accounts within the buy ledger.
It’s doable to determine the truth that errors have been made.
2. Location of errors
It may additionally help within the location of errors, the place posting to the management accounts are made every day or weekly, and even month-to-month. If a clerk fails to document an bill or a fee in a private account, or makes a transaction error, it will be a formidable activity to find the error or errors on the finish of a 12 months, say, given the lots of or 1000’s of transactions through the 12 months.
By utilizing the management account, a comparability with the person balances within the gross sales or buy ledger could be made for each week or day of the month, and the error discovered way more rapidly than if accounts didn’t exist.
three. For inside test
The place there’s a separate of clerical bookkeeping duties, the management account gives an inside test. The individual posting entries to the accounts will act as test on a special individual whose job it’s to publish entries to the gross sales and buy ledger accounts.
four. 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 less complicated 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 could be stored right down to a manageable measurement, because the private accounts are memorandum accounts solely and the management accounts as an alternative present the accounts required for a double entry system.