How Can We Define The Number Of Accounts In A Company?

The number of accounts into which costs as are classified can, of course, be many or few. The number selected is dependent on their usefulness as well as on the cost in time and money to maintain the records involved. Judgement is called for in order to avoid developing, on the one hand, a system with so much detail that the classifications will be more confusing than informative or more costly than worthwhile; or, on the other hand, a system whose on virtue lies in its simplicity.

If one must err here, it is better to err on the side of too much detail rather than too little. Information which can be collected in detail relatively inexpensively as a matter of orderly routine bookkeeping is time-consuming and costly to establish when it is necessary to work backward from summary accounts to original documents.

Moreover, some information, if not kept in detail, will never be available. For example, it is impossible to establish the cost of spoilage in production for a given time period broken down by major causes unless a record is made of each item spoiled, identified as to cause, at the time spoilage takes place or shortly thereafter.

This does not mean that management reports need be burdened with detail. The detail can be kept in the accounting records and monitored by the accounting department for the spotting of significant items that should be brought to management's attention.