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Accounting Disciplines: Descriptions and Definitions

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  • 0:37 Managerial Accounting
  • 1:11 Financial Accounting
  • 2:21 Tax Accounting
  • 3:16 Government Accounting
  • 4:23 Non-Profit Accounting
  • 5:10 Auditing
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Lesson Transcript
Instructor: Shawn Grimsley
Most people know that accountants work with numbers, but there's more to accounting than bookkeeping. In this lesson, you'll learn about various accounting disciplines including managerial, financial, tax, government and non-profit accounting.

Accounting Defined

The American Accounting Association defines accounting as 'the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information.' In other words, accounting is about collecting, analyzing and communicating financial information so other people can make decisions. Accounting can be broken down into discrete categories. Let's take a look at some of the most common.

Managerial Accounting

Marvin works as a managerial accountant for a large corporation. A managerial accountant collects, analyzes and communicates financial information to people inside the organization to help them make decisions. Examples of Marvin's work include an analysis of profitability of products or ventures, budgets and development of alternative uses of organizational resources. It's important to note that Marvin's accounting work is not intended for use by people outside his company.

Financial Accounting

Francine works as a financial accountant for a publicly traded company. Financial accounting involves preparation of financial information for public consumption. In fact, if a company is publicly traded, the law requires that certain financial information be disclosed to ensure that potential investors and shareholders have the information necessary to make informed investment decisions. And governments have a right to see what the company earned to ensure the company is meeting its tax obligations.

Francine will prepare financial documents that are pretty much a reflection of how her company performed in the past. The shareholders and potential investors will often use this information to project, or predict, how the company will perform in the future. Examples of documents that Francine will prepare for public disclosure include the company's balance sheet, income statement and cash flow statement. Francine will prepare the financial disclosures in compliance with the Generally Accepted Accounting Principles (GAAP).

Tax Accounting

Terry's a tax accountant. Terry focuses on tax issues and planning. Terry works as a consultant and provides tax accounting services to many different companies of varying sizes. He helps them collect the required information for filing of taxes such as income and expenses. He determines allowable deductions and finds available tax credits. He also prepares the tax returns for filing. If the government doesn't agree with the company's return, Terry will assist in representing the company in an audit. But this is only half of Terry's job.

Terry is also involved in tax planning. Terry will help his clients determine the tax implications of proposed business decisions. The goal for Terry is to minimize his client's tax liability within the bounds of tax law.

Government Accounting

Gavin works for the federal government as a government accountant. Gavin works for a government agency. His job is to determine the amount of funds needed for his agency's projects so a request can be made during the annual budgeting process. He also helps ensure that his agency is complying with its spending authority granted to it by the legislature.

Gavin uses a system of accounting known as fund accounting. The primary objective of fund accounting is to account for how money is spent rather than how it is earned. Fund accounting involves managing a set of funds. Each fund has a distinct purpose. For example, Gavin's agency may have a personnel fund, a supply fund and an operations fund. Gavin helps ensure that his agency is accountable to citizens by making sure the funds are used for their intended purposes. Gavin must also comply with the accounting standards and principles developed by the Governmental Accounting Standards Board (GASB).

Non-Profit Accounting

Nancy works as an accountant for a local charitable organization. Nancy's nonprofit organization is not focused on making profits for owners. Instead, it's focused on providing services to its clients. Nancy's organization provides free healthcare to the poor. Just like Gavin, Nancy uses a funds accounting system to track where her organization's money is spent.

Since her nonprofit is a tax-exempt organization, part of Nancy's job is also to help make sure that the organization's financial activities do not result in losing its tax-exempt status. For example, distributing revenue as profit to the members of the organization would cause the organization to lose its tax-exempt status.

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