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Bookkeeping vs. Management Accounts – is there a difference?

by | Jul 5, 2022 | Emma Willder

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As a small charity manager or trustee, you most likely feel like you wear many different hats, with bookkeeping and producing management accounts just one of the many different styles.

And we can’t lie; financial reporting for charities is essential. You must account for and highlight where funding comes from and in what form. Where money is spent, and the impact this spending has.

Ultimately, you’re responsible for ensuring that you are spending public money in a way that achieves and supports your charity’s vision, mission, aims, and, most importantly, your charitable purpose (or object).

This information comes from accurate bookkeeping and the generation of management accounts, which, as you will most likely know, are roles and activities that can be time-consuming, sometimes a little tedious, and, to be frank, one of the jobs you hate.

However, having the right accounting practices in place allows you to monitor and work to improve the financial performance of your charity, as you have a clear picture and good understanding of your current position, with forecasts and budgets generated from sound financial analysis.

The Charity Commission is responsible for setting rules and guidelines around accounting and reporting practices for charities, encouraging charities to operate with complete transparency at all times.

However, what is the difference between bookkeeping and management accounts? Do you need a separate bookkeeper and accountant? And how does all of this information relate to your statutory accounts?

Let us explain.

What is bookkeeping?

Bookkeeping is a big job, and in some instances, it can be overwhelming, particularly during busy periods in your charity’s calendar and especially if the charity only has you at their disposal (remember all those hats you wear).

However, accurate bookkeeping is essential for your charity.  

Why?

Because accurate, up-to-date financial record keeping allows you to keep track of donations and funding coming into the charity, as well as payments going out, recording and categorising this information effectively and efficiently.

Reconciling accounting ledgers, bookkeepers process, enter, and summarise these routine transactions to monitor all incomings and outgoings regularly (ideally daily), with all data entered into appropriate accounting software.

Attention to detail with bookkeeping is paramount as the information that goes into your ledgers forms those all-important management accounts, which then translate seamlessly (we hope) into your statutory accounts.

If the information in your bookkeeping is in any way faulty, then your management accounts and fund reports will also include these errors!

Management Accounts

Trustees and governing boards have a responsibility and duty to manage risk effectively, so it’s vital that they know the charity’s financial position and how the charity is progressing at regular intervals.

Enter management accounts.

Providing your boards and trustees with valuable financial information, management accounts can be a powerful tool that can bring many benefits.

For example, management accounts will show an analysis of the ledgers and present this information in such a way that it aids operational decision making, helping to make financial plans, forecasting, and budgeting for the future.

We need to think of management accounts as a way of carrying out a performance review to ensure that the charity operates efficiently and spends money on appropriate and outlined charity objectives and initiatives.  

These reports often include a summary of the key pieces of financial information, particular highlights to be aware of, a comparison of actual income and expenditure to date against budgets, updated cashflow forecasts, the value of any assets or liabilities, forecasts of income and expenditure to year-end, details of any movements on restricted funds, and more.

But what are the key differences between management accounts and bookkeeping?

  1. Boards and trustees rely on management accounts to make confident decisions in strategy and planning for the future, compared to bookkeeping which manages day-to-day cash flow.
  2. Management accountants are trained in accounting principles and financial analysis, using the information provided by the bookkeeper as a valuable resource to produce statutory accounts.
  3. Management accounts delve deeper into the numbers, spotting trends and variances to support future funding opportunities, picking out specific data useful for internal decision-making (the nitty-gritty is detailed in the ledgers produced by the bookkeeper). Management accounts can be produced quarterly, monthly, or even weekly (depending on your level of financial control).
  4. No set format is required for management accounts (bookkeeping relies on ledgers and online generalised accounting software), and there is no official timeframe to complete such accounts. This means management accounts can be tailored to the important information you want to know. In our view, you should complete your management accounts within ten working days of the month-end; any later than this, and the information may be out of date. Don’t let time slip away; timely management accounts can pro-actively aid in strategic decision-making.

How do these translate into statutory accounts?

Statutory accounts are very different from management accounts and bookkeeping as they have set timeframes for completion, they are mandatory, and there is a required set format when filing.

Statutory accounts are a culmination of all your recorded financial information.

Information such as incoming payments, funding, fundraising, donations, and expenses must all be included.

Prepared annually, statutory accounts align with your charity’s financial year. Providing a regulatory review of your charity’s financial position and all financial transactions taken within the 12 months (this is often in the form of profit and loss and balance sheets), showing how effective and efficient the charity is operating and how you are spending public money.

(Make sure to check out our post on `What funders look out for in an Annual Report.`)

Note:  All charities with an income over £250,000 a year, and all charities registered as a company, need to report using the Statement of Recommended Practice (SORP).

Producing statutory accounts requires a higher level of responsibility and accounting experience due to the mandatory governance requirements relating to filing accounts. However, we recognise that not all bookkeepers can turn the information they produce into management and statutory accounts for filing.

This is where Beyond Profit can help.

We like to think of your financial information as an accounting hierarchy, as shown below:

Helping to align all parts of your financial information to put all the pieces of the bookkeeping puzzle together to form good and informative management accounts.

We know that if trustees and staff aren’t using the finance reports you produce or understand the information presented in the reports, then they aren’t effective.

We also understand that bookkeeping and management accounts can be difficult, complex in places, and extremely time-consuming.

That’s why we offer an affordable, efficient, and reliable service. Taking away the stress and pressure of day-to-day finance tasks, so you’re free to focus on the things that matter most.

Supporting your charity’s financial position, speak to us today on 01204 582 104 or email us at hello@beyondprofit.co.uk.

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