WHAT IS THE DIFFERENCE BETWEEN STATUTORY AND MANAGEMENT ACCOUNTS?
Statutory accounts and management accounts aren’t just pieces of jargon meant to confuse you. They have real significance in the world of monetary management. In this blog, Your Tax Shop, Tameside will explain more.
Statutory accounts and management accounts are benchmarks in the industry of economics and business management. Their purpose is to monitor financial movement and allow for reporting on current progress, previous successes/failures and provide forecasts for the future.
Like most accounting practices, statutory accounts, management accounts, and the difference between them can sound quite complex and intimidating. However, like most accounting practices, once simplified, they are quite easy to understand.
At Your Tax Shop, Ashton under Lyne, we like to make things simple for you so let’s start at the beginning, looking at both statutory accounts and management accounts, and identifying exactly what their purpose is.
What Are Statutory Accounts?
A statutory account is a report that is prepared annually by limited companies with one simple goal: to break down and showcase financial actions taken by the company in that year.
A statutory account does not include every bit of detail, such as unique expenses or invoices. Instead, it is produced to form a statement of the company’s overall spending.
Generally, you would include a profit and loss report and a balance sheet. The profit and loss report simply displays turnover and profits, while the balance sheet also references the total value of assets, capital gains and business credit.
These reports are used both internally and externally, although the primary reason for producing statutory accounts is to share annual financial information with shareholders and HMRC.
What Are Management Accounts?
The clue here is in the name: management accounts.
These reports are produced to allow high-ups in a business to make decisions based on the financial position of the company. They detail specific data that is useful for the management’s current needs. Such as showing dips in specific sales or rises in certain types of expenses.
Management reports are exclusively used for internal decision making and are rarely given to shareholders, unless specifically requested or the company is struggling in certain financial areas. Many corporations opt to create management account reports quarterly, monthly, or even weekly as methods of tight financial control.
Summary from your Tax Shop, Tameside
Now we’ve taken the time to understand what both types of accounts are, we can compare them to see what the key differences between statutory accounts and management account are.
Knowing the difference between both reporting practices helps business owners understand how best to utilise them for financial management and future success:
- Management accounts can be designed and formatted however you like, but statutory accounts must follow specific layouts.
- While using management accounts is highly recommended, they are not mandatory. You decide if you want to produce management accounts and how many times a year you want to do. This is unlike statutory accounts, which must be produced annually.
- Statutory account reports provide an overview of all finances while management accounts get into gritty details. Statutory, from a technical accounting point of view, allows the business owner to see exactly what the result of their efforts is, as all information is adjusted for tax purposes. Management accounts, on the other hand, allow for greater levels of focus and a more in-depth analysis of your business
- Both statutory accounts and management accounts can help review your current financial situation, but management accounts are much better at providing forecasts and planning for the future. These reports can be tailored to specific timeframes and types of income/expense to home in future income and spending. You also don’t really want to run your business from the statutory accounts. Looking at your finances less than once a year is never a clever idea.
- A management account report isn’t made to look good for investors or HMRC — it is simply raw data, offering a true depiction of a current financial state. Statutory accounts, however, are clean and well presented. This isn’t to say they are inaccurate, but they more refined.