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Use your management accounts as internal controls in your company

by , 02 May 2013
An ineffective control environment will bring your business to its knees! That's why it's important that your company takes steps to implement effective internal controls. Read on to discover how you can use your management accounts as an internal control to monitor your business's activities so you never slip into the red.

'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.

Don't let your business go belly up because you don't have sufficient internal controls. Instead, keep an eye on these six items in your management accounts.

Use these six items in your management accounts as internal controls

  1. Gross profit. Use the gross profit percentage as a check to highlight potential problems in sales and manufacturing costs. 'Your business should have a consistent mark-up policy, which means that you'll always know what the gross profit percentage should be,' says the Loose Leaf. Your gross profit shows you how much profit comes from sales to fund your other selling, general and administrative business expenses.
  2. Sales. Monitor your sales against events in the market and your budget. Watch out for differences in sales volumes and prices.
  3. Cost of goods sold. Check your prices when your company buys things and not when you use them. Control your manufacturing costs.
  4. Extraordinary items. 'Separate out your manufacturing costs to avoid distorting costs and to highlight areas that require management's attention,' says the Loose Leaf.
  5. Selling, general and administrative expenses. Compare these costs with your budget. Focus on reducing these costs as far as possible.
  6. Net profit after tax. 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,' says the Loose Leaf. So, if this figure decreases, your real profits are decreasing.

Using these internal control measures in your management accounts to monitor your business's activities. Doing this will ensure that your company's finances are always in order.

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