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Introduction: What is Financial Accounting?

The aim of accounting is to provide useful and reliable information about businesses and non-profits. Financial accounting seeks to determine a firm’s economic performance and its condition. So, we want to ask “Did the firm make a profit or loss last year? Also, “What assets and liabilities did the business have at the end of the year?”

Non-profit accounting asks the same questions but with a few important twists. With these organizations we are less interested in profitability and more interested in evaluating how resources were used. How much was spent on support and fund raising as compared to expenses directly related to a non-profits mission? We also seek to evaluate compliance with donor restrictions on use of resources.

Financial accounting mainly looks backward. It addresses past economic performance and condition. In contrast  cost accounting is forward looking. Here  historical information is used to find cost and revenue patterns that allow managers to make better future operating decisions.

Accounting is not rocket science. In fact, contrary to popular belief, accounting is not a very precise science at all. Even absent fraudulent manipulation accounting  provides only approximations of economic performance and condition.

How This Website Can Help You

This web site briefly describes the main rules and procedures used in the major branches of accounting. More importantly this site will help you learn to evaluate the reliability and usefulness of accounting information. Sometimes accounting information is very useful, but often it is not. For this reason all users of accounting information should understand accounting’s inherent limitations. The site also describes the sometimes deliberate misuse of accounting rules by unscrupulous managers and executives.

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