The Three Types of Accounting Information

The main objective of accounting is to provide information that is useful for the decision
making of different users. This information must contain qualitative characteristics.

According to the FASB, accounting information must simultaneously possess four primary
and secondary characteristics. The primary characteristics are relevance and reliability; and
secondary characteristics are comparability and consistency.

Considering that accounting information must be useful in the decision-making process,

therefore, understandability is required as a specific characteristic for users. In this sense,
accounting information must be easily understandable by users with reasonable knowledge
of the businesses and activities. economic.

In relation to the different users of accounting information, these can be: shareholders,
creditors, investors, clients, administrators, governments, among others. It is convenient to
specify that accounting is not an end, but rather a means to an end.

Based on the different information needs of different user segments, the total information
generated in an economic organization is classified into three subsystems.

The financial information subsystem ---Financial Accounting

The Tax Information Subsystem ---Tax Accounting

The Administrative Information Subsystem ---Administrative Accounting

Financial Accounting

Financial accounting refers to information that describes the resources, obligations and
financial activities of an economic entity (whether an organization or an individual).
Accountants use the term financial position to describe the financial resources and
obligations of an entity at a point in time, and the term results of operations to describe its
activities during the year.

Financial accounting information is designed primarily to help investors and creditors

decide where to allocate scarce investment resources. These decisions are important to
society because they determine which companies and industries will receive the financial
resources necessary for growth and which will not. .

Tax Accounting

The information system related to tax obligations is known as tax accounting. This type of
accounting is based on the tax regulations established by law, it contemplates the
registration of operations for the presentation of declarations and the payment of taxes. Tax
accounting is useful only for government authorities, that is, the tax administration.

Administrative Accounting

Management accounting involves the development and interpretation of accounting

information specifically intended to help management manage the business. Managers use
this information when setting overall company goals, evaluating the performance of
departments and individuals, deciding whether to introduce a new product line, and making
virtually all types of management decisions.

Much management accounting information is financial in nature, but has been organized in
such a way that it relates directly to the decision at hand; however, management accounting
information often includes evaluations of non-financial factors, such as political
considerations. , environmental, economic, product quality, customer satisfaction and
worker productivity.

Differences between financial accounting and tax accounting

The main differences between financial and tax accounting refer to the type of users they
focus on and the type of regulation that is applicable to them.

Regarding the type of users, financial accounting is organized to produce information for
users external to the administration, such as: creditors, shareholders, suppliers, employees,
clients and regulatory bodies.

Tax accounting is organized to generate information required by a specific entity: the

government

The other main difference refers to the rules that are applicable in the preparation of the
information. Financial accounting is prepared based on financial reporting standards
(NIC/IFRS) issued either internationally or locally, while tax accounting is regulated by the
precepts contained in the tax laws of each country.

Difference between Financial and Administrative Accounting

Both are intended to generate useful information for decision-making in companies,

however, there are some differences.

Administrative accounting is organized in order to produce information for internal users,

made up of the administrators of the different departments or areas of the organization, it is
focused on the future and generates, among other information, budgets and cost standards.

Financial accounting produces information for external users, it is generally based on

information from the past or on events already carried out by the organization, in addition to
allowing a global view of the results of the economic entity.

Financial accounting is regulated by international financial reporting standards. This is

because users of financial accounting require a standard in the presentation of information
to make it comparable with other business cycles and/or with other economic entities. For
its part, the information generated by administrative accounting is not subject to accounting
standards or pre-established formats, since it is adapted to the needs of the organization's
users.

Financial accounting does not interact with other disciplines, since it basically uses the
information generated by manual or electronic accounting systems.

Administrative accounting is related to statistics, economics and other disciplines with the
objective of generating very detailed information for decision making.

Some concepts were taken from the book (Accounting, The Basis for Management
Decisions, by the authors Meigs, Williams, Haka, Bettner

Financial Accounting, Authors Gerardo Guajardo Cantú, Nora E. Andrade de Guajardo