Whereas financial accounts which have to be produced annually in the UK are geared towards external users of accounting information Management Accounts are produced by businesses for their own purposes and are aimed at internal users of accounting information
Management accounts are produced to help managers in a business record, plan and control its activities and, crucially, to be an aid to decision making. They are prepared on a much more frequent basis that financial accounts usually monthly but often more frequently than that (e.g., many retailers prepare management information on sales, margins and stock levels on a daily basis).
In the UK there is no legal requirement to prepare management accounts, although most well run businesses do prepare them and indeed would not survive without them.
There is no preset format for management accounts and they can be as detailed or brief as management of the business wish. As well as providing an operating overview management accounts often focus on specific areas of a business’ activities e.g. They can provide insights into performance of specific markets, product lines, divisions, department etc. Management accounts often include a wide variety of non financial information as well as financial e.g. Management accounts often include analysis of staff (number, costs, productivity etc.), – sales volumes (units sold etc.), customer transactions (e.g. Number of calls received into a call centre). Management accounts largely focus on analysing historical performance albeit perhaps only last week). but they also usually include forward looking elements like a sales budget or a cash-flow forecast and the historical figures will often by compared to a budget or a plan to spot variations.
Spotting these variations in a timely fashion and understanding why they have occurred is the key to using management accounts for decision making and is what makes them so invaluable to most businesses. Your full or part time finance director can help with the production of regular, accurate management accounts.