As a business owner, you know you need to produce accounts – that’s a given. But do you know the difference between statutory accounts and management accounts?
Your statutory and management accounts have two very separate purposes, and producing both kinds is good practice for any business that wants a handle on its numbers.
Let’s take a look at the key differences and why you need these specific kinds of accounting.
What are Statutory Accounts?
Statutory accounts are a legal requirement for any limited company or partnership. They’re the mandatory annual accounts you MUST produce, submit and file as a company. As such, statutory accounts are a regulatory requirement. You and your fellow company directors have a responsibility to ensure that these accounts are filed on time and in full.
Your statutory accounts will usually include a:
Directors’ Report
Giving an overview of business strategy and performance, key achievements, and the company’s overall financial position. It will also cover shareholder information and dividends alongside broader information about the company.
Profit and Loss Statement (P&L)
To outline the income coming into the business, and the expenditure going out over the course of the annual period. This is a key indicator of the profitability of the business during the preceding year.
Balance sheet
To give a snapshot in time of the assets, equity, and liabilities in the business. This is an indication of the financial health of the company on the date that the accounts are produced, a useful report for lenders and investors to review.
Cashflow Statement
So you can see your cash inflows and outflows over the course of the period. In an ideal scenario, you want your inflows to outweigh your outflows. This is known as being in a positive cash flow position.
Notes to the Financial Statements
Which contain supplementary details on your accounting policies, significant estimates, disclosures, and other relevant information for a comprehensive understanding of the financial statements.