The explanations for having management accounts are as follows:
1. Test on the accuracy
They supply a examine on the accuracy of entries made within the private accounts within the gross sales ledger and buy ledger. It is extremely simple to make a mistake in posting entries, as a result of there may be a whole lot of entries to make. Figures may get transposed. Some entries may 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 steadiness on the debtors account with the whole of particular person balances on the non-public accounts within the gross sales ledger.
o The entire steadiness on the collectors account with the whole of particular person balances on the non-public accounts within the buy ledger.
It’s potential 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 document an bill or a fee in a private account, or makes a transaction error, it will be a formidable job to find the error or errors on the finish of a yr, say, given the a whole lot or 1000’s of transactions throughout the yr.
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 shortly than if accounts didn’t exist.
three. For inside examine
The place there’s a separate of clerical bookkeeping duties, the management account supplies an inside examine. The particular person posting entries to the accounts will act as examine on a distinct particular person whose job it’s to publish entries to the gross sales and buy ledger accounts.
four. Extra merely and shortly
To offer debtors and collectors balances extra shortly for producing a trial steadiness or steadiness sheet. A single steadiness 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 may be stored 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.