Management and Financial Accounts: Analysis and Differences Report

This report provides a comprehensive comparison of management and financial accounts, highlighting their key differences and respective uses. The introduction defines accountancy and its role in business, setting the stage for a detailed analysis of the two types of accounts. The main body differentiates between management accounts, which are internally focused and flexible, and financial accounts, which adhere to strict standards like IFRS and are used for external reporting. It examines differences in objectives, compulsion, time periods, formats, information scope, auditing requirements, publication, and user groups. The report then explores the usefulness of each account type to various stakeholders, including managers, employees, shareholders, creditors, and governmental authorities. It emphasizes how management accounts support internal decision-making, while financial accounts facilitate external reporting and investment analysis. The conclusion summarizes the importance of both account types for effective business control and management.

Task

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

INTRODUCTION
Accountancy is the concept of recording, classifying, analysing and evaluating business
transactions of an organisation. This concept develops various accounts which provide an
evidence of true and fair condition of an organisation (Cornett and et.al., 2011). The main aim of
this report is to distinguish between the management and financial accounts. This record these
accounts are analysed along with the differences. Usefulness of both the accounts is also
analysed in this report.
MAIN BODY
Difference between management and financial accounts
Management accounts – These accounts are developed by an organisation to control and
manage their operations. These types of accounts are not mandatory to be prepared using any
regulations or standards. Examples of management accounts include cash account, inventory
account, budgets etc.
Financial accounts – These types of accounts are prepared using financial accounting
principles and standards to present the financial information of an organisation or all the
stakeholders of an organisation. Examples of financial accounts are income statements, balance
sheet and cash flow statement.
Difference
Basis of difference Management accounts Financial accounts
Objective The objective behind developing
management accounts is to assist
management of an organisation in
the process of decision making
(Madura, 2020).
These accounts are prepared with
an objective of providing fair
information about the
organisation’s financials to all
stakeholders.
Compulsion Development of management
accounts are not a compulsion.
An organisation prepares these
accounts for their convenience of
controlling and managing the
operations of that organisation.
It is compulsory for every
organisation to develop financial
accounts so that they can be
appropriately audited for the
purpose of taxation and other
regulations.
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Time period Management accounts can be
prepared whenever management
is in the need of these accounts.
Financial accounts are mandatory
to be developed at the end of a
financial year.
Format and
regulations
There is no fixed format of
developing management accounts
and there is no regulations which
control development of these
accounts. The format of these
accounts is set by the organisation
itself according to their
suitability.
There is a fixed format for all the
financial accounts. For example,
journal entries must have two sides
which are debit and credit. Apart
from this, relevant authorities have
also provided fixed formats for
trial balance, profit and loss
statement, cash flow and statement
of financial position (Pompian,
2011).
Financial statements and accounts
are developed with certain
regulations and guidelines. These
regulations are termed as
International Financial Reporting
Standards. These standards are
provided and amended by an
internal board which controls all
the financial affairs about these
accounts. This board is recognised
as International Accounting
Standards Board.
Information In the case of management
accounts, both monetary and non
monetary information is included
due to which it has a wider scope
than financial accounts.
Financial accounts only include
monetary information which is
rigid in nature with narrow scope.
Auditing Auditing is a process of checking Whereas, every company requires
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the fairness of the accounts of an
organisation. Audit process can
be internal as well as external.
There is no requirement or
obligation of conducting an audit
of management accounts.
auditing for their financial
accounts from an external auditor
so that auditor can provide the
opinion which is fair and true
against the financial information.
Publish Management accounts are not
required to be published in public.
Various companies publish some
of their management accounts
such as inventory account in their
annual reports under notes.
It is mandatory for every company
to publish their financial accounts
to the registrar and to the public.
Focus Focus of management accounts
are at the present information and
situation of the company
(Richardson, Taylor and Lanis,
2015).
On the other hand, focus of
financial accounts is at both
present and historic information of
the company so that all accounts
must be accurate.
Users Management accounts are used
by the internal parties of the
organisation such as managers
and employees of the company.
Users of financial reports are all
the stakeholders of an
organisation. These stakeholders
include employees, managers,
investors, board of directors,
suppliers, creditors, debtors,
governmental authorities and
customers.
From the above analysis, it has been analysed that both management and financial
accounts are different but are important for a business organisation.
Usefulness of these accounts to the users of financial information
Management accounts – These accounts are used by the internal stakeholders of an
organisation. These accounts are used for the purpose of internal decision making. Managers use
these accounts to identify the requirement of inventory for production and order that level of
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inventory. Employees use this information to identify their monthly target of production and try
to complete their targets. These accounts are used to analyse the cash level in the organisation
and sources from where cash can be procured and operations can be operated smoothly.
Financial accounts – In the aspect of usefulness, the scope of financial accounts is much
wider than management accounts. All the stakeholders of an organisation use such accounts
according to their requirements. Shareholders use income statement to identify their dividends,
investors use financial accounts to review profitability of the company so that they can analyse
their prospect returns (Chandra, 2011). Creditors use balance sheet to identify debt amount and
analyse credit payment time period. Suppliers of an organisation, use the cash flow statement to
identify the cash outflow in operating activities so that they can analyse the credibility of the
operations of an organisation. Government analysis all the financial statement to identify the
taxable amount which organisation has to pay to the government.
Apart from above external stakeholders, internal stakeholders such as BODs use financial
accounts to develop future plans and strategies. Managers and employees use these statements to
procure benchmarks for their operations to ensure growth of the organisation.
CONCLUSION
From the above report, it has been concluded that management and financial accounts are
entirely different but are important for an organisation to develop so that they are effectively
control and manage their operations. It has been also summarised from above report that scope of
uses of financial accounts is much wider than the scope of management accounts.
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REFERENCES
Books and Journals
Cornett, M.M. and et.al., 2011. Liquidity risk management and credit supply in the financial
crisis. Journal of financial economics. 101(2). pp.297-312.
Madura, J., 2020. International financial management. Cengage Learning.
Pompian, M.M., 2011. Behavioral finance and wealth management: how to build investment
strategies that account for investor biases (Vol. 667). John Wiley & Sons.
Richardson, G., Taylor, G. and Lanis, R., 2015. The impact of financial distress on corporate tax
avoidance spanning the global financial crisis: Evidence from Australia. Economic
Modelling. 44. pp.44-53.
Chandra, P., 2011. Financial management. Tata McGraw-Hill Education.
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