Management accounting is one of the most powerful tools you can use in a business. It is typically used by the upper management and executives of the business to help them make strategic decisions concerning specific departments, product lines or the business as a whole. These accounts are usually prepared monthly, and they give you a snapshot of the state of the company that is up to date. They involve key performance indicators across the entire organization.
There is one major secret to preparing management accounts: precision with your data. Once you have a budget that is up to date for every arm and function of the organization, you then look at the historical data of the company to find out how that data compares to the forecasts and budget. This will help you do two things simultaneously. On the one hand, it will help you spot an undesirable trend before it goes too far and becomes almost impossible to control. On the other hand, it will confirm whether the business is generally on track when it comes to meeting its financial and operational objectives.
The Bookkeeping Aspect of Management Accounts
The first step is to make sure your bookkeeping is up to date. All the inflows and outflows should be properly recorded. You could do this in a variety of ways, such as a specific product line or a specific department You can enlist the help of financial management software to make the process easier if you’re a small business. For a larger business, you may need to use enterprise resource planning software. This will also involve having the right policies in place to ensure precise and accurate accounting and a monthly financial report sample to guide the preparation of reports. There should be a budget prepared by each department and reports for every period showing the financial transactions that have taken place in that period.
Reports on Expenditures
Once the reports are as accurate as they can be, assemble all the reports on the expenditures of the business. You should review all purchases by all departments in a given period, whether they were on credit or not. Each department should also have a detailed account of how it spent its money on such things as accounts payable, office supplies, maintenance, bonuses and salaries.
Reports on Income
You should also assemble reports on the income the business has received including sales, investment and accounts receivable income. Gather the details from the sales department, including the sale of each product and income from each sales avenue. Use an accounts receivable worksheet. You need to know how the business is generating its revenue and how profitable that revenue is according to the avenue of sales, the location and the product itself.
Bringing It All Together
Once you have all this information, collate it in one comprehensive report that covers the entire business. The reports of each department should be compared against their forecasts and budgets, and the report for the whole organization should be compared to the whole organization’s budget and forecasts.
You should also compare the reports for expenditure and income against the banking records to reconcile the two. This is to ensure your reporting is accurate. Any discrepancy in your management accounts will indicate improper accounting, which could sometimes mean some fraudulent activity is ongoing.
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