Businesses often run two types of accounts. Here we review the options for management accounts versus financial accounts.
When running a business, you will likely run into two types of accounts necessary for your business’s financial health. These two accounts will be able to provide you with ideas on how to improve your business’s financial position whilst also helping you to attract investors and stakeholders.
Management accounting reports are prepared by management accountants in order to help businesses monitor their business transactions and financial data. They do not have a specific deadline as they’re not mandatory or enforced by any government agency. Businesses choose to prepare management accounts to help them with internal decision-making and to allow the management team to look at specific details in the business operations and make any necessary changes.
Financial accounting reports are prepared by financial accountants in line with national deadlines (usually the end of the tax year) to demonstrate the business’ financial position. These accounts include profit and loss sheets, a balance sheet and a cash flow analysis. The report will show the last year’s worth of business transactions and assets, as well as any liabilities within the company’s finances and not always by an accounting firm but often by an individual.
Accuracy
One of the key differences between financial accounting reports and managerial accounting reports is the accuracy of data used. Financial accounting reports are shared with stakeholders, potential investors and other important players in the business, so the data used is of a high standard and the accountant will ensure that the correct information is used and that it is relevant to the most recent accounting period.
Alternatively, managerial accounting reports are simply for the business’ management team and often rely on educated estimates. According to Darlington accountants Auditox Accountancy these reports are often prepared much more regularly than financial accounts and so management accountants have to use projections and estimates in order to complete the report.
Standards
Similarly, since financial accounts hold more importance in terms of long-term business strategy and are often viewed by external parties, they are written and calculated in line with the generally accepted accounting principles. This means that the accountant preparing the reports must be careful to ensure that they meet all necessary international and national accounting principles. The financial reports must also include specific data like balance sheets and cash flow analysis.
Management accounts, on the other hand, are simply used in-house for internal management’s benefit. Therefore the accounting data does not have to follow any specific accounting methods or principles, and there is no template, fixed format or specific data that must be included within the report.
Focus/goal
Financial and managerial accounting reports also differ in their focus or goal. The focus of managerial accounting is simply to educate the internal management of a business on the financial health of the company. This allows them to then make short-term changes to solve any issues within the business’ finances. Financial accounting, however, is much more focused and serves a specific focus or goal than automated finance.
Timing
Financial accounts or financial statements are legally required. Limited companies must produce reports at the end of the financial year. This allows them to declare their financial transactions and past performance to external stakeholders.
Management accounts do not have a specific timeframe, and are done depending on the business’ needs. It may be that accountants choose to prepare reports on a monthly basis, or it might be done quarterly, yearly, or whenever necessary. These reports are done to help enhance profits and are strictly for internal consumption.
Job role
Usually, the two different reports are prepared by different accountants. Those studying accountancy or bookkeeping may choose to focus their career on financial accounting or managerial accounting. There are some key differences between the two job roles.
Managerial accountants
A management accountant will work for one company. They will hold responsibility for the accounts of that company and will look for efficient ways to enhance profits. Unlike other roles in accounting, they will not have other clients. They may well have a team beneath them of other financial professionals to help them with their main objective: profitability.
The daily tasks of someone who works on managerial accounting reports will include:
In order to work as a managerial accountant, a person will need a professional qualification like ACA, ACCA or even AAT. To become a chartered management accountant, you will need to take the CIMA qualification.
On average, management accountants earn around £45k a year in the UK.
Financial accountants
Financial accountants are essential. They are responsible for recording, summarising and reporting a business’s financial transactions. They produce annual reports to demonstrate the company’s financial health.
Each day, financial accountants will need to:
Those working as financial accountants can expect to earn an average salary of £40k in the UK.
Essentially, whilst both accounts are necessary for the financial success of a business, one is much more regulated than the other. Financial accounts require information that is held up to accounting standards and must be submitted as financial statements each year.
Management accounts can be done by businesses as frequently or infrequently as the business feels necessary. This might depend on company resources, the company’s management and how volatile the industry that the company works within is.
Many businesses may benefit from hiring a management accounting team or accountant to help enhance their profits throughout the financial year and may choose to also hire a financial accounting professional to assist with their financial statement when the end of the tax year is approaching.
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