The picture here represents the legendary Stargate, a science fictional gateway between two dimensions. There was a 1994 film starring James Spader and Kurt Russell.
I often use it to illustrate the difference between planning and accounting. Planning begins today and goes forward into the future. Accounting ends today and goes backward into the past. Planning is for making decisions, setting priorities, and management. Accounting is also for information and management, of course, but there are legal obligations related to taxes. Accounting must necessarily go very deep into detail. Planning requires a balance between detail and concept, because there are times when too much detail is not productive.
The catch that causes many misunderstandings is that the statements look very similar. Your accounting system produces an Income statement (alias Profit or Loss), a Balance Sheet, and a Cash Flow statement. A good business plan has at least the same three statements as "pro-forma" (meaning projected) statements. The form, presentation, and order of appearance of these financial statements are almost identical, but their information content is quite different.
Accounting should zoom into ever-increasing detail. Planning should summarize and aggregate.
Accounting can never be wrong. Business plans are always wrong (not that they aren’t useful — it’s like walking or steering, the value is in the correction and the management of where and why they’re wrong, but that’s a different post.)
One thought on “Planning is not Accounting”
Managerial accounting is between the past and the future. You look at how you’ve done historically and that shapes your decision-making for the future. Planning based on accounting is a lot of fun; if I were to become an accountant, I would enjoy working at the Stargate.
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