Types of Accounting - Online Tutor, Practice Problems & Exam Prep

Types of Accounting: Financial and Managerial

Alright, so there are two types of accounting that you're going to focus on in your first few accounting courses. Let's see what they are. So the first one here is Financial Accounting. Financial Accounting is going to be the focus of this course. We're going to spend all of our time dealing with Financial Accounting, okay? And this is where we're creating information to report to external users. Okay? External users are people outside of the company. Alright? So when we're thinking about accounting, we're making information about the company and now we're making this information for people outside the company. Why would people outside the company want information about our company? Well, there could be investors, right? Investors might want to invest in our company, and they want to know if they're going to make a wise decision investing in us, alright? Another one would be creditors. So creditors, that's people who lend money to the company. So creditors, that would be something like a bank, right? And you could see why they would want good information about the company. Is this a good investment that they're making, loaning money to the company or is it a huge risk that they're taking? Okay. And the last one here would be the government. The government would be another good example. So when the government wants to collect taxes, well, they're going to need to know how much money you made to know how much to tax you. Right? So they're going to require certain information about the company as well. Alright. So let us talk about the laws here in the US and internationally. So when we're going to report financial information to external users, in the US, we follow what's called the GAAP, generally accepted accounting principles. Generally accepted accounting principles, that's what we follow in the US and they're set by FASB, Financial Accounting Standards Board. Okay? So GAAP is set by FASB and that's what we'll write right here. So GAAP, this is what we call it and FASB is who makes those standards. Okay? And internationally, we have something similar. We have International Financial Reporting Standards here behind me, let me get out of the way. So we call the International Financial Reporting Standards, we call that IFRS. Okay? IFRS and that's set by the International Accounting Standards Board. IASB. Okay? So we don't really have one for that, we just say IASB, but you can see that. It's easy to remember which one's the international one because they have Is right there. Right? I for IFRS, I for International Accounting Standards Board, right? And then we have GAAP and FASB in the US. So there are some differences between GAAP and IFRS. Some textbooks go into a lot of detail about this and we're going to have videos about that and some don't even talk about it at all, but it's good to know that they exist, that there are two different sets of rules, one that's used here in the US and one that's generally followed around the world. Okay. So financial accounting, we have these standards, we have these laws to follow and now let's talk about managerial accounting. This is the other type of accounting right down here And if financial accounting creates information for external users, what do you think managerial accounting is going to do? Well, we're going to be creating information to report to internal users. Okay. So this is people inside the company. So why would people inside the company want financial information? Well, we could have managers, right? Management of the company might want information of maybe how much it costs us per unit that we produce, right? Or marketing, the marketing department might want financial information, that might help them with their marketing campaigns. Right? So when we talk about the laws and the standard-setting for managerial accounting, well there are none, right? We're not reporting this to anybody outside the company, we can do whatever we want. We want to gather whatever information we want to help us make better decisions inside the company, nobody can stop us, right? There's no law saying what financial information we can gather about our own company, okay? So remember, managerial accounting, we're not going to focus on that in this course. This course, we're focusing here on financial accounting, alright? So that being said, let's go ahead and move on to the next video.