Management accounts are a set of summarized accounting data which are prepared and presented specifically for a firm’s or organisation’s management. Management accounts are usually prepared weekly, fortnightly or monthly according to organisation specifications. The data summarized to make management accounts include; balance sheet, income state and cash flow. The key objective of management accounts is to provide for a firm or organisation with a timely and key statistical and financial information that managers will use in making their day to day, short term as well as long term decisions in the organisation.
Advantages of Management Accounts
Organisations often use management accounts to do several management procedures. Management accounts are used in tracking, recording and reporting financial information for the purpose of managerial review. Management accounts do not follow national accounting standards of any sort this means business owners are completely free to design their own management accounting systems suitable to their own business specifications. The following are advantages of using management accounts in an organisation.
• Reduce expenses. Management accounts are capable of reducing expenses of a company or organisation. Information from management accounts allow business owners to understand better how much it would cost them to run a business. Business owners can also conduct an analysis using management accounts to get to know the production cost and hence focus on getting raw materials at cheaper prices.
• Improve Cash Flow. Management accounts are good in helping a business in making budgets. These serve as business road maps for the business owners. Budgets are formed through a historical information about an organisation however management accounts are capable of scanning through this to make a master budget that a company can use.
• Business Decisions. Management accounts improve the decision making process of business owners. Management accounts serve as decision making tools instead of making decisions that are based on qualitative analysis only.
• Increase Financial Returns. Management accounts can also be used to increase an organisation’s returns. Management accounts are capable of creating financial forecasts for an organisation, they relate to consumer demand, effects that come with consumer price changes and potential sales.
There is a difference between management accounts and financial accounts, where by managements accounts focus on providing a company with information within the company to ensure its management can operate in a more effective way while financial accounts are focused on the financial state distributed to lenders, stockholders and others parties outside the company.