The explanations for having management accounts are as follows:
1. Verify 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 a whole lot of entries to make. Figures may 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 whole stability on the debtors account with the overall of particular person balances on the non-public accounts within the gross sales ledger.
o The whole stability on the collectors account with the overall of particular person balances on the non-public accounts within the buy ledger.
It’s attainable to establish 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 day by day or weekly, and even month-to-month. If a clerk fails to report an bill or a fee in a private account, or makes a transaction error, it might be a formidable process to find the error or errors on the finish of a 12 months, say, given the a whole lot or hundreds of transactions through the 12 months.
Through the use of 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 rather more shortly than if accounts didn’t exist.
three. For inner test
The place there’s a separate of clerical bookkeeping duties, the management account gives an inner test. The individual posting entries to the accounts will act as test on a special individual whose job it’s to submit entries to the gross sales and buy ledger accounts.
four. Extra merely and shortly
To supply debtors and collectors balances extra shortly for producing a trial stability or stability sheet. A single stability on a management account is clearly anticipated less complicated and shortly 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 saved all the way down to a manageable dimension, because the private accounts are memorandum accounts solely and the management accounts as a substitute present the accounts required for a double entry system.