If you work in business, you will likely have heard talk of management accounts and statutory accounts and may have assumed they were two names for the same thing.
However, these terms are not simply buzzwords. Instead, they refer to two very distinct types of accounts.
Statutory accounts
Statutory accounts are prepared each year by limited companies. They do not need every detail, but are designed to show the company’s overall spending. They generally show a profit and loss report and a balance sheet that includes the total value of capital gains, assets, and business credit. The reports are for internal and external use, with them being used to share financial information with HMRC and shareholders. With these reports being mandatory, it is best to entrust them to a professional. If you do not have in-house accountants, you can find local accounting companies to help. To find one, use a relevant internet search like ‘business accountants Gloucester’ if you are in that area, and you will get results such as https://www.hazlewoods.co.uk/expertise/business-accountants/gloucester/.
Management accounts
Management accounts are for internal use and are produced to allow those in management and high-level positions in the company to make decisions with an accurate picture of the company’s finances in mind. These reports are not mandatory and do not need to be produced in a particular format or at a particular time.
Key differences
These two types of accounts have some similarities but also many differences. Statutory accounts must follow a specific layout, while management accounts can be formatted and designed to your preference.
Management accounts are highly useful, but they are not mandatory, while statutory accounts must be produced each year.
Statutory accounts provide a financial overview which shows the end results, but management accounts can provide more in-depth analysis of the business. As they are not limited to a specific time frame, management accounts tend to be more useful at forecasts and future-planning.
Although accurate, statutory accounts are more refined to look good for investors and HMRC, while management accounts feature raw data.