Rabu, 18 Juli 2012

The Purpose of Control Accounts



The reasons for having control accounts are as follows:

1. Check on the accuracy

They provide a check on the accuracy of entries made in the personal accounts in the sales ledger and purchase ledger. It is very easy to make a mistake in posting entries, because there might be hundreds of entries to make. Figures might get transposed. Some entries might be omitted altogether, so that an invoice or a payment transaction does not appear in a personal account as it should. By comparing:

o The total balance on the debtors account with the total of individual balances on the personal accounts in the sales ledger.

o The total balance on the creditors account with the total of individual balances on the personal accounts in the purchase ledger.

It is possible to identify the fact that errors have been made.

2. Location of errors

It could also assist in the location of errors, where posting to the control accounts are made daily or weekly, or even monthly. If a clerk fails to record an invoice or a payment in a personal account, or makes a transaction error, it would be a formidable task to locate the error or errors at the end of a year, say, given the hundreds or thousands of transactions during the year.

By using the control account, a comparison with the individual balances in the sales or purchase ledger can be made for every week or day of the month, and the error found much more quickly than if accounts did not exist.

3. For internal check

Where there is a separate of clerical bookkeeping duties, the control account provides an internal check. The person posting entries to the accounts will act as check on a different person whose job it is to post entries to the sales and purchase ledger accounts.

4. More simply and quickly

To provide debtors and creditors balances more quickly for producing a trial balance or balance sheet. A single balance on a control account is obviously expected simpler and quickly than many individual balances in the sales or purchase ledger.

This means also that the number of accounts in the double entry bookkeeping system can be kept down to a manageable size, since the personal accounts are memorandum accounts only and the control accounts instead provide the accounts required for a double entry system.

Rabu, 04 Juli 2012

Scope of Accounting



Management Accounting and Cost Accounting

Management or cost accounting is a management information system which analysis data to provide information as a basis for managerial action. The concern of a management accountant is to present accounting information in the form most helpful to management.

Financial Accounting

Financial accounting is mainly a method of reporting the results and financial position of a business. It is not primarily concerned with providing information towards the more efficient conduct of a business. This is particularly clear in the context of the published accounts of limited companies. Accounting standards and public law prescribe that a company should produce accounts to be presented to the shareholders.

Financial Management

The financial manager is responsible for raising finance and controlling financial resources. Including the following decisions:

(a) Should the firm borrow from a bank or raise funds by issuing shares?
(b) How much should be paid as a dividend?
(c) Should the firm spend money on new machinery?
(d) How much credit should be given to customers?
(e) How much discount should be given to customers who pay early?

Auditing

The annual accounts of a company must generally be audited by a person independent of a company. In practice, this often means that the members of the company appoint a firm of registered auditors to investigate the financial statements and report as to whether or not they show a true and fair view of the companies results for the year and its financial position at the end of the year.

Qualities of Good Accounting Information

Below are some features that accounting information should have if it is to be useful:

Relevance
Comprehensibility
Reliability
Completeness
Objectivity
Timeliness
Comparability