Use these five items in your monthly management accounts as internal controls
'In a business, management accounts are the basis for all decision-making as they help you keep business finances on track,' says the Practical Accountancy Loose Leaf. Read on to discover how you can use your monthly management accounts as an internal control to monitor your business' activities so you never slip into the red unknowingly.
Management accounts are a 'set of summarised accounting data like a balance sheet, cash flow, and income statement prepared and presented usually every month, fortnight, or week specifically for a company's management. The objective of management accounts is to provide timely and key financial and statistical information required by managers to make day to day and short-term decisions,' explains the businessdictionary.com.
Every manager should look at in their monthly management accounts to keep an eye on how their business is doing. In fact, you can also use your management accounts as an internal control in your business to ensure your books always stay cash healthy.
But to do this, you'll need to know the various things in your management accounts that'll help you keep tabs on your business's financial health.
These five items will ensure you have internal controls in your monthly management accounts
Sales. Monitor your sales against events in the market and your budget. Watch out for differences in sales volumes and prices.
Cost of goods sold. 'Check your prices when you purchase these, and not when you use them. Control your manufacturing costs,' says the Practical Accountancy Loose Leaf.
Extraordinary items. Separate out your manufacturing costs to avoid distorting costs and to highlight areas that require management's attention.
Selling, general and administrative expenses. Compare these costs with your budget. Focus on reducing these costs as far as possible.
Net profit after tax. 'Compare this figure with your peers. If your net profit after tax decreases, this could signal problems to come. Net profit after tax is the money you can put in the bank, or reinvest in your company, without worrying about any more deductions. So, if this figure decreases, your real profits are decreasing,' says the Loose Leaf.
Using these controls in your management accounts will ensure you have you have internal controls in your business that'll keep your business out of the red.