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London & the South East Accountants

Statutory & Management Accounts

Understanding the difference

1. Statutory Accounts

These are the accounts you have to provide to Companies House if you are Ltd Company, or to the tax office if you are an individual. They are governed by certain rules called Financial Reporting Standards.

2. Management Accounts

These are accounts that help you run your business. You set up how they look and what they measure.

Statutory accounts are of limited value when running a business. They tend to use terminology which is difficult to understand, and can sometimes be several months out of date. They can be useful to people outside the business, such as investors of big companies, or the taxman.

Management accounts can free you up to measure the things that will help you manage and grow your business, such as profitability by project, or keeping track of people that owe you money. A key setup tool for good management accounts is a wisely set up book-keeping system.

Don't be browbeaten by the difficulty of understanding yearly 'statutory' accounts. As said, they are of limited use for the day-to-day running of a business. (They are used when calculating tax though).

Management accounts should be produced at least quarterly and with larger companies, monthly.

The most sophisticated management accounts should tell the business owner where the profit is coming from and how the business is doing against budget and against prior year.  

The best management accounts will also not just have a profit and loss account and a balance sheet, but also a break even analysis and cash flow forecast.

Set up your book-keeping system to measure the things that help you steer your business day-to-day, make the 'Statutory' Accounts a subset of the management accounts, not vice versa.

G & J Financial Service Ltd Chartered Certified Accountants