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Which of the following might be reasons why the managing director would require
management accounts to be prepared?
a. To assess whether the organisation is profitable
b. To assess whether the organisation should obtain loan finance
c. To provide information for external use
d. To understand the performance of the company for internal useWhy is A and B wrong? (Ans – D)
A is wrong because the management accounts are used mainly for control purposes and will not include all expenses of the company (for example interest paid on loans). It is the financial accounts that show the actual profit of the company.
B is wrong because the management accounts will not show how much finance the company needs or whether any finance required should be raised by issuing shares or by taking loans.
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