The causes for having management accounts are as follows:
1. Check on the accuracy
They present a examine on the accuracy of entries made within the private accounts within the gross sales ledger and buy ledger. It could be very straightforward to make a mistake in posting entries, as a result of there could be lots of of entries to make. Figures may get transposed. Some entries could be omitted altogether, in order that an bill or a cost transaction doesn’t seem in a private account because it ought to. By evaluating:
o The whole steadiness on the debtors account with the full of particular person balances on the non-public accounts within the gross sales ledger.
o The whole steadiness on the collectors account with the full of particular person balances on the non-public accounts within the buy ledger.
It is feasible 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 day by day or weekly, and even month-to-month. If a clerk fails to report an bill or a cost in a private account, or makes a transaction error, it could be a formidable activity to find the error or errors on the finish of a 12 months, say, given the lots of or hundreds 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 rather more shortly than if accounts didn’t exist.
three. For inner examine
Where there’s a separate of clerical bookkeeping duties, the management account supplies an inner examine. The individual posting entries to the accounts will act as examine on a unique individual whose job it’s to put up entries to the gross sales and buy ledger accounts.
four. More merely and shortly
To present 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 means additionally that the variety of accounts within the double entry bookkeeping system could 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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