Management Accounting compared with Financial Accounting


 It is important that management accounting is clearly distinguished from financial accounting.

The first piece of great news is that management accounts are not audited and not even required by law – that means you can ‘DIY’ if you want to and there are no large accounting bills at year end or heavy fines for getting it wrong or sending in late!

Management accounting systems and financial accounting systems in a business do both record the same basic type of data for income and expenditure.  The main differences between them and how they use the information is shown below.

  • Management accounting information is for ‘future proofing’ it is created by the business for the business i.e. to help plan for future profits and kept secret from competitors.
  • Financial accounting information is used to report externally i.e Recording past activities, audited by law for tax purposes and available for all to see.
  • Management accounting information is recorded and presented in a manner which is entirely at management discretion (or not done at all).
  • Financial accounts are required by law, and this is the basis for the manner in which they are presented.
  • Management information is an historical record, and used as a tool for future planning.
  • Financial accounts are an historical record only.

Summary – you can’t change the past (the financial stuff), but with careful planning (the management accounting stuff) the future can created (in secret) with a lot more confidence! Management accounts involves budgeting the most important tool for continued success.

Check out the next link and try to undertake a typical management accounting exercise – the Price/Profit challenge

Call me if further help is needed.


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