Financial Accounting: In an Economic Context

APPENDIX 1A

THREE OTHER KINDS OF ACCOUNTING

This text is devoted almost exclusively to financial accounting. However, you should be aware of the three other kinds of accounting usually covered in other accounting courses: not-for-profit accounting, managerial accounting, and tax accounting.

Many economic entities do not have profit as an objective. Municipalities, such as cities, simply receive money from taxes, service fees, and debt investors and allocate it to address public needs. For example, a city allocates funds to a police department to ensure public safety. The process of recording these fund inflows and outflows and reporting them to the public is quite logically called not-for-profit accounting.

Managers need internal information systems to generate timely and accurate information that helps them plan and operate efficiently on a day-to-day basis. To guide their decisions, managers rely to some extent on the information produced by the financial accounting system. However, more important to such decisions is information that is not available to the public and is produced strictly for management's own use. Such information is referred to as managerial accounting information, and managerial accounting is usually covered in a separate course.

The area of accounting devoted to understanding and applying the tax law is known as tax accounting. Our complicated and constantly changing tax structure requires that thousands of accountants specialize in this area. Furthermore, ...