Both tax accounts and management accounts are based on the same raw data, but the presentation and consequently the interpretation and use of them is very different.
It should be easy to reconcile the two, so what’s the difference?
Tax accounts are external; their purpose is to report income and expenditure which subsequently provides the figures that populate the tax return in the most advantageous way. Management accounts are internal; their purpose is to aid decision making and help achieve short and long term goals.
Why is the profit often so different if the raw data is the same?
- Stock valuations/herd basis adjustments
- Capital expenditure versus repairs
- Drawings/private use versus business expenses
It is our job as accountants to explain these differences when we present accounts. Management accounts should benefit the business and not just satisfy the milk buyer or the bank manager.
Kathy Harris
February 2020
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