Management accounts

22 October 2009

Many firms regard management accounts as an essential way of organising important information about the running of the business.

Although businesses tend to prepare management accounts in slightly different ways, there are a number of areas which accounts generally cover. These include, among others, sales, cashflow, profits, stocks, creditors, debtors, assets and employment records.

Management accounts are produced on a regular basis, either monthly or quarterly.

The information in them is assembled in such a way that it can be measured against forecasts made for the business and its various operations earlier in the year or quarter. This means that the performance of the business can be assessed and judged in a number of different areas – sales, profitability, product performance.

By analysing a set of management accounts, a business is better placed to pick up on sales trends, for example, or to reorganise resources or to identify areas of high expenditure or to adjust employment policies.

As a method of keeping records, management accounts allow a business to retain details about its sales and purchases and the effects of any financial restructuring.

Management accounts also enable a business to plan how to manage its cashflow, its stock and its expenses.

Most importantly, the information that is collated in management accounts means that a business can make more effective decisions about prices, investment, marketing spend, the performance of products and services, and the direction and aims of any new strategies.