21st February 20232 Min Read
The key differences between financial accounting and management accounting
Accounting is just number crunching, isn’t it? Well, yes and no.
There are different types of accounting that have specific uses in business so it’s worth distinguishing between the 2 main ones: financial accounting and management accounting. There is also forensic accounting which we’ll cover in a later article.
Financial accounting
Financial accounting is the processes and standards for financial record keeping.
This type of accounting is responsible for the production of things like balance sheets, income statements and cash flow statements. These statements are used to inform stakeholders, creditors, tax authorities, and regulators of an organisation’s financial activity and performance. There are five main classifications that are reported on in financial accounting: revenue, expenses, assets, liabilities, and equity. Financial accounting processes and reports should be in line with Generally Accepted Accounting Principles (GAAP) which are principles published by the UK Accounting Watchdog. Remember, it’s a legal requirement to keep accurate financial records in the UK, and there is plenty of software out there that can make life easy so that you’re not panicking at the end of the year when submissions are due.
Management accounting
Management accounting is different in that reports are prepared on an ad-hoc basis and delivered to management and the board of directors. Management accounts contain more detailed information than financial accounts. Such information is needed for the management to have a full picture of the current state of affairs internally. Management accountants are responsible for things like preparing monthly budget reports, obtaining finance for projects and developing financial systems and procedures to improve decision-making. Things like budgeting and forecasting are key metrics that will enable decision-makers to strategise and grow the business. There are no legal obligations for management accounts like there are for financial accounts, but you should certainly still produce them if you want to grow your business!
What AIMS Accountants do for you
AIMS Accountants do both. They are equipped to produce financial accounts for you so that you don’t get penalised by HMRC, but they can also act as a finance director in your business to help you understand your management accounts.
For the two main types of accounting, you’re covered. You can find your nearest AIMS accountant here: https://www.aims.co.uk/find-your-local-aims-accountant.
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