Talking Cents

The Difference Between Financial and Management Reporting

Accountants are an essential part of any business operation. However, one accountant is usually not adept at performing all the functions of financial upkeep. All accountants have different fields of expertise. Amongst them, financial reporting and management reporting stand out. These two types of reporting assist any firm or business in staying on top of its game. These tools help small businesses by making them aware of ways to efficiently monitor and manage their outcomes.

Financial reporting and management reporting play very different roles in the performance improvement of a business. A financial report consists of a cash flow analysis, balance sheet, equity statement, income statement, forecasting, etc. Management reporting has other areas of concern, such as monitoring team performance, making executive decisions, letting the shareholders have clarity of the workings of the company, etc.

To understand both these terms better and know the difference between them, let’s explore further.

What is Financial Reporting

Financial reporting is analysing the various monetary aspects of the business based on previous performance. There are many aspects of financial reporting. They all relate to the company assets, the cash flow and the revenue generation in a fiscal year. Financial reporting assists business owners in improving financial practices, performing cash flow forecasting, being better equipped for low cash months, and improving profitability over time.

What is Management Reporting

Management reporting deals with the operational and functional aspects of the business. They are more widespread in their approach to improving company performance. In management reporting, things such as profitable areas, most profitable industry practices, and employee performance are all analysed.

Difference between Financial Reporting and Management Reporting

The difference between financial reporting and management reporting is that the former deals with only the revenue and cash flow, while the latter focuses on operations and other areas of the business. However, the most significant difference between them is that financial reporting is usually done in hindsight, whereas management reporting sheds light on future prospects.

In conclusion

Both these aspects are equally important. One must not be chosen against the other. To gain the benefits of accounting, it is advisable to hire professionals who are capable of performing financial reporting as well as management reporting.

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