Management accounts is a set of methods for collecting, recording, analysis and consolidation of information about financial and economic activity of the company. This information can be used by the company owners for making decisions about how to improve company’s efficiency.
Management accounts task
The main task of management accounts is to provide information on the company’s activities. It can be information about pricing policy, production costs or demand data for its products. Depending on situation in the company, contents of management reports can vary.
Management accounts tasks include:
- resource and income analysis to identify deviations from the accepted standards;
- planning of company as a whole and its departments;
- analysis and control of company’s activity;
- analysis of financial, labor, monetary and material resources;
- calculation of internal cost of the products, services rendered or works performed and comparing data obtained with target and/or standard indicators;
- calculation and analysis of the financial results of company’s departments;
- forecast of the future events impact based on analysis of past periods;
- provision of other information, which can be used as a basis for managerial decisions.
Objectives of management accounts
The main purpose of keeping and application of management accounts is to provide the Board or top management with planned, practical and forecast data on activities of the entire company and its business units.
Following this objective, management accounts perform the following functions:
- prepare full information about economic and financial activity of the company regardless of its scope, to the management;
- show the rating of individual business lines and/or its elements with the aid of proper segmentation (by activity, product groups or departments);
- analyze, forecast and record expenses and income of the company;
- control costs by segmenting them by type and location;
- make and oversee financial budget both of the entire business and individual objects;
- track settlements both between the business owners and with individual counterparts.
Depending on who is the target recipient of information, there are strategic accounts intended for owners of the company, and current accounts required for top management.
Keeping management accounts at the quality level is impossible without the involvement of specialists with relevant expertise. By contacting our experts, you get not only efficient organization of work, but confidence that your targets will be achieved.
Requirements to management accounts
Major requirement to management accounts is data relevance — information obtained should be relevant to a decision making. In other words, even absolutely reliable information can be useless if not needed for addressing a specific issue. At the same time, not even 100% accurate data could allow to make right decision, provided that they are relevant for this purpose.
Other requirements to management accounts include:
- integrity — accounts should be maintained systematically, with mandatory adherence to common principles of reflecting data and relationship between internal reporting and accounting registers;
- understandability — when drafting reports, you have to keep in mind that the main recipients of information do not have deep economic knowledge (information shall be presented in the form of charts, diagrams, or tables);
- timeliness — necessary information should be prepared by the moment of making decision, it is important to take care to avoid overload and/or hang-up of computer hardware due to a large volume of information;
- completeness and accuracy — all information received shall fully satisfy the users’ information needs and be sufficient for decision making;
- regularity — reporting should occur at regular intervals, which depends on the goals and objectives of a particular company.
Difference between management and accounting records
Looking into the difference between management and accounting records, we can identify some basic ones:
- Management reporting data are for internal use only (owners, shareholders, top-managers), whereas information received from accounting is intended for external use (auditors, tax authorities and creditors).
- Accounting statement is open information, whereas management report is a commercial secret.
- Performance indicators of management records can be natural or monetary (unlike accounting records, where figures are expressed only in monetary units).
- Performance indicators of management reports can be probabilistic and qualitative — not only stock and flows, but the external environment (e.g., market saturation by the manufactured products) also shall be described.
For better understanding, here are some clear examples of difference between management and accounting records:
- in accounting records the number and content of negative references from clients is irrelevant, but this information is important when forming management records for quality department;
- for accounting records competitors production volumes are insignificant, but for managerial decision on opening of additional shops these data are mandatory;
- accounting records don’t address the issue of number of generated estimates, whereas in management reporting these data are needed for the analysis and workload planning of cost estimate department.
Methods used in management accounts
Management records are formed by the system real-time analysis, which is a combination of the following methods:
- mathematical analysis — a mixture of linear programming, correlation, least squares method, etc.;
- index – based on statistical data;
- economical (in particular, factor analysis);
- elements of financial accounting — includes formation of double-entry bookkeeping and accounts, analysis of inventory sheets, documents and balance sheets, evaluation and calculation.
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- knowing the legal aspects of taxation of small and medium-sized businesses, we help companies optimize costs and expenses;
- in preparing statements for the company’s top management, we take into consideration specific features of your company and the area of its activities;
- we can work both on a permanent basis to organize a “turnkey” record keeping, and advise from time to time when a need arise, or perform specific tasks.
By ordering keeping of management records from us, you will not only get a full and correct information, but also can efficiently optimize company’s performance, increasing its profit. Our managers are always ready to answer your questions and discuss our services in more detail.
By sending us feedback form or by calling us today, you can give your company a new development potential for tomorrow.