Key Differences Between Management Accounts and Financial Accounts

This report discusses the key differences between management accounts and financial accounts, including their aims, scope, types, regulatory requirements, concepts, nature, auditing and publishing, and users. It also explores the usefulness of these accounts to the users of financial information.

Business Finance

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Key differences between management accounts and financial accounts....................................1
Usefulness of management accounts and financial accounts to the users of financial
information..................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business finance is the set of activities which a business organisation undertakes to acquire
and converse their financial resources in order to ensure that the business operations are
appropriately conducted. Broadly there are two types of activities which the concept of business
finance has which are accounting and costing (Atrill 2014). The main aim of this report is to
build the understanding of accounting and its uses. For this purpose, in this report key
differences between management and financial accounts are evaluated. Furthermore, in this
report uses of these accounts to the users of financial information is also assessed.
MAIN BODY
Key differences between management accounts and financial accounts
Management accounts are informal statements which a business organisation develops in
order to ensure internal control in their organisation. On the other hand, financial accounts are
developed for the purposes of both maintaining internal control and fulfilling the legal
requirements. Both of these accounts are developed using different skills and principles, few of
these differences between both of the accounts are stated and evaluated below:
Basis of
difference
Financial accounts Management accounts
Aim A business organisation develops
financial accounts with various
purposes which include providing true
and fair monetary information about
the organisation, providing base for
economic decisions and fulfilling the
cycle of monetary information
communication.
On the other hand, a basic purpose to
develop managerial accounts is to assist
internal personnel in the process of
decision making. The management
accounts are also develop by the
organisation for making budgets and
making predictions about future
expenses and profits.
Scope The scope of financial accounts is
wider than management accounts as
these accounts are developed by every
business organisation operating in a
On the contrary, scope of management
accounts is narrower than management
accounts as usually small scale
organisations do not prefer to develop
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legal environment. management accounts due to few
business transactions (Atrill, 2015).
Types of
accounts
There are three types of financial
accounts which are income statement,
balance sheet or statement of financial
position and cash flow statement.
There are various types of management
accounts which differ on the discretion
of organisational operations. Some of
these types of management accounts are
cash account, inventory account,
performance statement, trade receivables
accounts and many more.
Regulatory
requirement
According to the legal compilations, it
is compulsory to develop financial
statement by every company.
But there is no legal requirement to
develop management accounts. These
accounts are only developed
Regulated
parties
The format of developing financial
accounts is provided by IFRS
(International Financial Reporting
Standards). The board which is
responsible to provide such types of
regulations is IASB.
On the other hand, management
accounts are prepared according to the
manager of the organisation and there
are no legal committee or authority
which controls the development of such
accounts.
Concept The concept which followed by
financial accounts is financial
accounting. This concept involves
recording, classifying, transacting,
interpreting and evaluating every
monetary transaction in a business
organisation.
Management accounts follow the
concept of management accounting.
This concept states that organisation
should record every monetary and non-
monetary transaction so that the data can
be used for effective decision making.
Nature The nature of financial accounts is rigid
in nature because the format and
principles of development of such
accounts cannot be changed.
On the other hand, management
accounts are flexible in nature and can
be changed according to the requirement
of an organisation(Chandra, 2011).
Auditing Financial accounts of any company On the other hand, there is no
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and Publish have a compulsory requirement to be
audited by an independent auditor. This
individual is a legal auditor who does
not have any relationship with the
company. Once the financial
statements are audited, they need to be
published in the form of an annual
report every year along with auditor’s
opinion.
requirement for management accounts to
be audited but they can be audited from
an internal auditor as a choice of the
company. These accounts are not the
part of annual report and are not
published by the companies.
Users There are both external and internal
users of financial accounts. Internal
users of such accounts include
employees, managers and board of
directors. External users of such
accounts include suppliers, creditors,
investors, public, debtors, shareholders
and government.
Management accounts are only available
to internal users of the company which
are employees, departmental managers
and board of directors (Madura, 2020).
Usefulness of management accounts and financial accounts to the users of financial information
The above comparative analysis has provided users which uses the financial information in
both accounts. These uses are evaluated below:
Management accounts
Departmental managers and employees – Such stakeholder’s uses management accounts to
gain the information about the business so that appropriate decision can be made.
Board of directors – Uses of management accounts’ financial information to BOD are
strategy development and planning for future.
Financial accounts
Internal stakeholders –BODs use the financial information to set benchmarks for company’s
future performance. Employees and managers use financial accounts to review performance of
the company so that they can identify that whether company is able to pay their wages or not.
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Investors and Shareholders – Such parties use financial accounts to analyse the returns and
dividends which company is able to provide to their investors and shareholders against the
invested capital.
Government – Legal authorities use financial accounts to identify the taxable income of the
company which they are entitled to pay.
Creditors – This party uses financial accounts to check the credibility of the company so that
they can ensure that company is able to re pay their due amount (Watson Head, 2016).
CONCLUSION
From the above report, it has been concluded that both financial and management accounts
are important for an organisation and these accounts are way different than each other. It has
been also concluded that management accounts less used than financial accounts as the users of
financial accounts are both internal and external.
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REFERENCES
Books and Journals
Atrill 2014. Financial Management for Decision Makers. 7th ed. London FT Prentice Hall.
Chapter 10 - Working Capital.pdf
Atrill, 2015. Management Accounting for Decision Makers. 8th ed. London Pearson. Chapter 6
Budgeting.pdf
Chandra, P., 2011. Financial management. Tata McGraw-Hill Education.
Madura, J., 2020. International financial management. Cengage Learning. Modelling. 44. pp.44-
53.
Watson Head, 2016. Corporate Finance. 7th ed. London Pearson. Chapter 3 - Working
Capital.pdf
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