Author: Jim Riley Last updated: Sunday 23 September, 2012
Comparison of financial and management accounting
There are two broad types of accounting information:
• Financial Accounts: geared toward external users
of accounting information
• Management Accounts: aimed more at internal users
of accounting information
Although there is a difference in the type of information
presented in financial and management accounts, the underlying objective is
the same - to satisfy the information needs of the user.
Financial accounts describe the performance of a business over a specific
period and the state of affairs at the end of that period. The specific period is often referred to
as the "Trading Period" and is usually one year long. The period-end
date as the "Balance Sheet Date"
are used to help management record,
plan and control the activities of a business and to assist in
the decision-making process. They can be prepared for any period (for
example, many retailers prepare daily management information on sales,
margins and stock levels).
are incorporated under the Companies Act 1989 are required by law to
prepare and publish financial accounts. The level of detail required
in these accounts reflects the size of the business with smaller companies
being required to prepare only brief accounts.
There is no legal
requirement to prepare management accounts, although few (if any) well-run
businesses can survive without them.
The format of
published financial accounts is determined by several different regulatory
There is no pre-determined
format for management accounts. They can be as detailed or brief as
concentrate on the business as a whole rather than analysing the component
parts of the business. For example, sales are aggregated to provide
a figure for total sales rather than publish a detailed analysis of
sales by product, market etc.
can focus on specific areas of a business' activities. For example,
they can provide insights into performance of:
business locations (e.g. shops)
accounting information is of a monetary nature
usually include a wide variety of non-financial information. For example,
management accounts often include analysis of:
- Employees (number, costs, productivity
- Sales volumes (units sold etc.)
- Customer transactions
(e.g. number of calls received into a call centre)
definition, financial accounts present a historic perspective on the financial performance
of the business
largely focus on analysing historical performance. However, they also
usually include some forward-looking elements - e.g. a sales budget; cash-flow forecast.
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