What is internal accounting?

Internal accounting is fundamentally about the process of collecting, processing and presenting financial information for the internal governance and decision-making of the company. This type of accounting is flexible and adaptable because it is not bound by external reporting requirements or legislation. It gives management the opportunity to tailor reporting to the specific needs and objectives of the company.

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Key features of internal accounting

Since internal accounting does not precede legal requirements, there are really no requirements for what should be included in the internal accounting. However, from a business perspective, it should include and disclose information that the company needs to lead and develop the business. Exactly what it is, of course, is individual for each business, but usually it involves drawing up different types of budgets, accounting for internal transactions and counting on different types of financial ratios. In many cases, the internal and external accounts are merged into a common accounting rather than keeping the two systems separate.

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How is internal accounting different from external accounting?

Internal accounting is focused on providing information for the internal decision-making and governance of the company. It is not regulated by law and can be adapted to the needs of the company. Nor does it have to be made public, but it is up to the management of the company to decide whether it should be disseminated. External accounting, on the other hand, is regulated by law and must be made public, as the whole point of external accounting is to provide a financial overview to external stakeholders such as shareholders and government agencies.

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Internal Accounting FAQs

1. Who uses the information from internal accounting?

The information is primarily used by the company's internal stakeholders, such as management, department heads, and employees, to make decisions related to the company's operations and strategy.

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2. Is internal accounting mandatory?

No, internal accounting is not mandatory and not regulated by law. However, it is an important practice for effective corporate governance and strategic planning.

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