Financial accounting and management accounting are two key parts of financial best practice for businesses of all sizes. In this article, we’ll look at the main difference between management and financial accounting, as well as the role of a management accountant in helping you streamline and improve your internal business processes for greater success.
The Role Of Financial Accounting
Financial accounting is what most people think of when ‘accounting’ springs to mind. It involves the systematic recording, summarising, and reporting of a business’s financial transactions through the preparation of financial statements. These statements include your income statement, balance sheet, and cash flow statement, and provide a comprehensive view of your company’s financial health and performance.
Sound financial accounts are essential for managing your tax liabilities and reporting responsibilities, and also play a central role in decision-making, funding applications, and investment planning.
The Role Of A Management Accountant
Management accounting is a specialist branch of accounting that analyses an organisation’s internal management processes. While financial accounting is primarily to aid compliance with external bodies, such as creditors, investors, and HMRC, the aim of management accounting is to help business owners and their senior colleagues make more informed decisions, improve efficiency and performance, and generally strengthen the management and operation of the company.
Activities Associated With Management Accounting Include:
1. Performance evaluation for various departments, campaigns, and projects to identify strengths, weaknesses, and areas for improvement.
2. Cost analysis to evaluate the overheads associated with production, operations, or specific activities – e.g. marketing – to optimise your resource utilisation and increase your profit margins.
3. Budget and forecasting support, helping you create realistic budgets, financial forecasts, and variance analysis to guide growth plans, product launches, investments, and campaigns.
4. Supporting you and your managers to evaluate proposals, assess the market need for your products and services, and determine the most suitable financing options to meet short-term and long-term objectives.
Key Differences
While there is strong overlap between financial and management accounting, both disciplines use different processes and approaches to achieve slightly different goals. For example, while financial accounting focuses more on profits and financial performance, management accounting is more concerned with the underlying reasons behind the figures, in order to identify and analyse ways to streamline and maximise your business processes.
Furthermore, while financial accounting produces a standard set of reports and covers set accounting periods – such as a year or quarter – management accounting is often far more flexible and customised in its reporting periods and set of formats.
Integrations
Both Xero and Sage offer various connections with third-party applications to enhance their functionality, and it is straightforward to import transactions from your business bank accounts. Xero also integrates with various online payment processors, CRM applications, project management tools, and e-commerce platforms, making it a strong choice for independent online retailers and B2B SMEs that take payments online.
Claim A Free Gap Analysis From Vanilla Accounting
At Vanilla Accounting, we offer both financial and management accounting services, as part of a flexible package to give you the financial support you need to develop and grow your business. Take advantage of our free gap analysis service to find out how you can make targeted improvements to your business to facilitate greater growth and profits.
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