Welcome to our last section on financial management information. This section is going to include lectures on the difference between financial accounts and management accounts. The different types of management information and example management accounting reports, which could be used or developed for budget monitoring purposes. If you go through all the lectures in this section, you will hopefully be able to consistently monitor and control your budgets with the information that you need and the techniques that you have learned in our previous sections. Let's start with what are financial accounts. financial accounts report on the past they state an organization's income expenditure for a specific period, usually a year, and also the assets and liabilities at that particular point in time.
The accounts are presented in two main financial statements called the income and expenditure account, and the balance sheet. Organization organizations have a legal requirement to produce annual financial accounts in a timely manner and meet specific standards, many of which are international standards. Most publicly funded organizations are required to have their accounts independently audited in order to ensure those funds have been properly accounted for. Management accounts are different. They report on the present and the future as well as the past. They reflect an organization's planned income and expenditure usually in the form of a budget or forecast or projection.
The management accounts can be presented in any format that an organization finds useful. Their purpose is to assist an implementation of the financial plan developed to support the achievement of the organization's objectives. Management accounts can be produced at any time. Depending on the accounting system being used. The frequency often depends on the nature of the service being delivered. Most organizations produce monthly management accounts, but they could be produced weekly, or quarterly.
It is advisable that management accounts are produced but there is not a legal requirement. Management accounts rely on accurate and complete financial accounting information. In order to compare the past income and expenditure. We The plant or future income expenditure for the same period. So, both sets of accounts are very useful, but they have different uses and we summarize them below financial accounts, they're legally required. They have a standard format, and they allow comparisons between different organizations.
They provide historical information, which can be relied upon, and can be used to measure performance. They provide information on the financial standing of the organization, and its future viability and sustainability. They can be used as a basis for making future plans and for decision making. On the other hand, management accounts are not legally required, but very advanced. They can be designed to be used in a wide range of different ways for different staff, between managers, budget holders, senior directors and so on. They provide regular information on the present, which can be used for the assessments of the future and the impact of decision making.
They provide information on planned expenditure and income and include commitment accounting. They can be used to compare actual expenditure with the budget and as a basis for projecting out turns. We've discussed all of these things in the previous lectures. There are many common factors between the finance and management accounts. These include the need for accurate and complete financial information. Transactions need to be probed.
Assessed in a timely manner, accounting adjustments, such as journals to correct errors, established provisions, bad debts, accruals, and so on. These accounting terms are covered in our book called finance for non financial public sector managers. Just visit our website for details. They need a proper level of financial governance to ensure financial procedures are being followed and to avoid fraud. They both need a good financial accounting system. Most organizations have one and they produce both the financial and management accounts.
Now for a quick quiz. It is going to be easy by the way. just jot down on a piece of paper the answers to the following where would you find the commitments well Would you find out how much surplus your organization has made for the year? How could you find out how much your organization is? Well? Where would you get the information you need to project the outturn?
The answers to this quiz can be found in one of the handouts attached to this course.