Financial reporting and management reporting are two sides of the same coin – One is the key to your business’s success, and the latter is key to your company’s operations and performance. Let’s dig in and understand the differences and why both of these reports are essential for the success and growth of your business.
Financial Reporting: An Introduction
Financial reporting is the process of collecting and delivering financial information to the company’s stakeholders to influence business decisions and goals. This process includes three important facets:-
- Cash Flow
- Value of Assets
The accountant is responsible for preparing these reports, which is why he/she must have an in-depth understanding of the variety of statements required by the business and the accounting standards which the company follows.
Management Reporting: An Introduction
Management reporting gives answers related to a company’s operations and performance for a financial year. Management accountants are responsible for sending out monthly management reports to the CEO and stakeholders. These reports help stakeholders make better decisions about the company’s profit channels, performance, and tactical steps to benefit the organization as a whole.
Financial Reporting vs. Management Reporting: The Differences
Accountants are the ones who handle both financial and management reporting. By acting as an advisor for their company, they share information related to the finances, performance, and profit ratios to the stakeholders.
Financial reporting includes:-
- External reports that require expertise and guidelines to be followed.
- Demonstrates the company’s overall performance for a financial year.
- Looks back on the company’s past performance to evaluate profit or losses.
Management reporting includes:-
- Internal reports concerned with banks, investors, and CEOs.
- Demonstrate the company’s reports for operations and processes.
- Looks into the future and helps maintain the company’s performance.
There are several types of financial and management reporting, namely:-
- Profit and Loss Statements
- Balance Sheets
- Accounts that are to be paid
- Reports from where funds are coming in
- Statement of transactions
To Sum it Up!
On the one hand, your business needs financial reporting for compliance, making sure the numbers add up and to prevent cash flow problems. On the other hand, your business needs management reporting so you can make better business decisions backed by analysis and data. If you as a business owner don’t receive management reports at the end of each month, you’ll be missing out on critical information that can help your company grow. So, both reporting systems are essential for a business’s growth and success.
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