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Accounting - financial & management accounting compared

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

Management Accounts

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"

Management accounts 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).

Companies that 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 elements:

·   Company Law

·   Accounting Standards

·   Stock Exchange

There is no pre-determined format for management accounts.  They can be as detailed or brief as management wish.

Financial accounts 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.

Management accounts can focus on specific areas of a business' activities.  For example, they can provide insights into performance of:

·   Products

·   Separate business locations (e.g. shops)

·   Departments / divisions

Most financial accounting information is of a monetary nature

Management accounts usually include a wide variety of non-financial information.  For example, management accounts often include analysis of:

- Employees (number, costs, productivity etc.)

- Sales volumes (units sold etc.)

- Customer transactions (e.g. number of calls received into a call centre)

By definition, financial accounts present a historic perspective on the financial performance of the business

Management accounts 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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Sources of Finance for a Startup
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Creating & Protecting Business Ideas
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Market Research for a Startup
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Choosing a Legal Structure for a Startup
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Finance

Revenues
Breakeven Basics
Costs, Revenues and Profits
Business Costs
Using Budgets
Using Breakeven in Decision-Making
Investment Appraisal Basics
Financial Strategies
Measuring and Improving Profit
Improving Cash Flow
Working Capital
Balance Sheet
Income Statement
Financial Efficiency Ratios
Profitability Ratios and ROCE
Liquidity Ratios
Gearing

Marketing

Competition
Products & Brands
Place (Distribution)
Promotion
Pricing
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Business Organisation

Basics of Business Growth
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Legal Structure Basics
Franchising
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Generating and Protecting a Business Idea
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People

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Critical Path Analysis
Scale and Resource Mix
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Managing Quality
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Working with Suppliers

Economic Environment

Economic Sectors
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Inflation
Unemployment
Interest Rates & Monetary Policy

Business Strategy

Leadership styles
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Change Management







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Related study notes

INTRODUCTION TO ACCOUNTS
Introduction to Accounting
Users of Accounts
Accounting Concepts and Conventions
Stakeholder Theory
Characteristics of Accounting Information
Alternatives to Profit Maximisation
Maximising the Value of a Business
Non-financial Objectives of a Business
Comparison of Financial and Management Accounting

BUDGETING
Financial objectives - intro
Financial objectives - key measures
Introduction to Business Planning
Introduction to Budgets
Purpose and Role of Budgets
Incremental Budgeting
Zero-based Budgeting
Variance analysis
Budgeting limitations

COMPANY FORMATION
Introduction to Business Organisation
Forming a Company
Advantages of Incorporation

FINANCIAL MANAGEMENT
Introduction to Financial Management
Introduction to Working Capital
Working Capital Needs of Different Businesses
Working Capital Cycle

SOURCES OF FINANCE
Managing Business Cash Flows - An Introduction
Introduction to Raising Business Finance
Sources of Finance for SMEs
Overdraft Financing
Business Angels
Introduction to Venture Capital
Sources of Equity Finance
Rights Issues
New Share Issues & Flotations
Intoduction to Leasing
Leasing - Advantages & Disadvantages

FINANCIAL STATEMENTS
Introduction to Financial Accounting
Income Statement
Profit quality
Balance Sheet
Current assets
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RATIO ANALYSIS
Introduction to Ratio Analysis
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Accounts & financial performance
ROCE
Asset turnover
Stock turnover
Debtor days
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ACCOUNTING ISSUES
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STAKEHOLDERS
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