The explanations for having management accounts are as follows:
1. Examine on the accuracy
They supply a verify 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 perhaps tons of of entries to make. Figures would possibly get transposed. Some entries is perhaps 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 full steadiness on the debtors account with the whole of particular person balances on the private accounts within the gross sales ledger.
o The full steadiness on the collectors account with the whole of particular person balances on the private accounts within the buy ledger.
It’s attainable 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 cost in a private account, or makes a transaction error, it might be a formidable activity to find the error or errors on the finish of a 12 months, say, given the tons 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 rather more shortly than if accounts didn’t exist.
three. For inner verify
The place there’s a separate of clerical bookkeeping duties, the management account supplies an inner verify. The individual posting entries to the accounts will act as verify on a distinct 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 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 could be stored right 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.