Key features of management accounts
Management accounts provide detailed financial information for the management to track and monitor the company’s performance. These can be prepared on a weekly, monthly, or quarterly basis. They allow management to compare current performance against forecasts and budgets previously prepared, enabling them to make strategic decisions.
Management accounts are not mandatory or required to be prepared by law, however they do serve as an important tool in reviewing current financial performance, thus allowing management to take decisions in the short and long term.
Format of management accounts
These can be taken straight from a company’s accounting system such as SAGE, QUICK Books and Xero, or prepared in excel and formats adopted to the internal information needs of a company’s management.
Management accounts prepared usually focus on set KPIs that are considered important to a company.
Statutory accounts are a legal requirement for all limited companies, who must prepare statutory accounts covering the company’s financial year or period, and must be completed once a year.
The accounts prepared are required to be approved by the board of directors and made available to shareholders. Once approved, a copy of the accounts must be filed with Companies House within 9 months after the financial year ends.
What is the purpose of statutory accounts?
As stated above, there is a legal requirement for companies to prepare statutory accounts and failure to submit to Companies House on time will lead to fines and risk of being struck off.
These are prepared to present the financial position for a year just passed and are used to calculate corporation tax which is payable to HMRC.
They also allow shareholders to review the performance of the company for the year.
The accounts are filed at Companies House so that they can be shown publicly on their register.
Format of statutory accounts (small company only)
Statutory accounts must be prepared in a certain generic format which is compliant with the Companies Act 2006.
The size of the company based on certain size criteria and will also determine the content and level of disclosure notes to be included.
Key features of statutory accounts include the following:
The director’s report is prepared by the board of directors and presented to the shareholders at the annual general meeting. It provides an overview of the company’s performance and activities during the year. The director’s report must include a statement of the directors’ responsibilities regarding the financial statements and the report of the auditors. It must also contain a statement of the directors’ opinion on the current concern basis of the company.
Profit and loss report
The profit & loss account shows the financial performance of the company during the financial year. It includes revenue, associated cost of sales, administrative expenses, finance costs and corporation tax, resulting the overall profit or loss incurred in the year.
The balance sheet shows the position of the company at the year-end date. It includes long-term and short-term assets, long-term and short-term liabilities, and the equity make-up of the company. This must be approved by the board and signed by a director.
Notes to the accounts
These notes to the accounts are the additional information and explanations that accompany the financial statements. They provide more details and clarity about the items, amounts, and transactions reported in the balance sheet, income statement, statement of changes in equity, and cash flow statement.
The main differences between statutory accounts vs management accounts are summarised below:
- Legal requirement – Statutory accounts are required to be filed each year/period at Companies house whereas Management accounts do not have this requirement.
- Format – Statutory accounts are required to follow a set format and include a profit & loss account, balance sheet and associated notes, these must comply with relevant accounting standards such as FRS105, FRS102 or IFRS. Management accounts can be prepared in any format management decides, which services their purposes.
- Audience – Statutory accounts are prepared for external purposes, such as Companies House, HMRC and shareholders. Management accounts are purely for internal purposes, but often banks will require them when a company is applying for a loan or other finance.
- Purpose – Statutory accounts present the financial position for a year just passed and are used to calculate corporation tax and can be viewed as historic information. Management accounts show current performance allowing management to make decisions and future planning.
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Both management accounts and statutory accounts monitor a company’s financial position and report on the results, providing invaluable forecasts to the company’s position and growth plans and can have a huge impact on the strategy and direction of a company.
If you are finding it difficult to conduct your company’s financial management accounting and efficient processes, contact our Accounting solutions services, team of expert accountants and bookkeepers who can assist you with your year-end planning and tailour solutions to your specific requirements.
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