While financial accounting reports are mainly limited to the financial statements and supporting notes, managerial accounting reports come in many varieties. Because managerial accounting is concerned with providing information for internal decision-making, the form of managerial accounting reports differs depending on the information the company needs. However, understanding some of the basic managerial accounting reports can give you an idea of the types of reports that may be helpful in managing your own small business.
The most common managerial accounting report used in small business is a budget. A budget, also referred to as a profit plan, is a formal quantitative plan for the future of a company. Budgets usually are prepared on an annual and monthly basis, and employee performance is compared to the budget. Specific budgeting practices can vary across companies, but usually companies want some amount of employee participation during the budget creation process. Employees who are involved in the creation of the budget are more likely to strive to achieve budgetary goals.
The balanced scorecard is a strategic planning report that is used throughout business to help evaluate employees and department progress toward company goals and visions. Traditionally, employees were strictly evaluated on financial measures, such as sales or profit. However, this method of performance evaluation can be short-sighted. For example, if a manager grows profit by buying inexpensive but substandard materials, profit rises in the short term, but the company's reputation may suffer in the long run. The balance scorecard integrates customer service, learning and growth measures with traditional financial metrics to provide a more long-term focus on performance.
The contribution format income statement is an alternative-form income statement that breaks costs down into their fixed and variable components. Using a traditional income statement, small-business owners are not able to learn what portion of costs are fixed or variable with respect to a level of production. Being able to discern cost behavior on the face of the income statement can be helpful when making production volume decisions. For example, if a small-business owner is thinking about slowing production to reduce overall costs, if she sees that most of her production costs are fixed, then she can see that this strategy may not be effective.
Small-business owners looking to expand their businesses may benefit from projected financial statements. Usually born out of a budget, projected financial statements extend a budget further into the future. It is common for companies to have financial statements that are projected out as many as five to 10 years into the future. While projected financial statements that are extended far into the future may not be reliable, this activity helps small-business owners remain future-focused.