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The explanations for having management accounts are as follows:
1. Examine 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 vitally straightforward 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 full of particular person balances on the non-public accounts within the gross sales ledger.
o The entire stability on the collectors account with the full 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 may 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 could be a formidable process 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 may be made for each week or day of the month, and the error discovered rather more shortly than if accounts didn’t exist.
3. For inner test
The place there’s a separate of clerical bookkeeping duties, the management account supplies an inner test. The individual posting entries to the accounts will act as test on a distinct individual whose job it’s to submit entries to the gross sales and buy ledger accounts.
4. Extra merely and shortly
To offer debtors and collectors balances extra shortly for producing a trial stability or stability sheet. A single stability on a management account is clearly anticipated easier 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, 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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Source by Randika Lalith Abeysinghe