Should a business buy a building to serve as its new headquarters or rent a facility instead? What price should a data processing company charge customers for its services? Should advertisements to alert the public about a new product be carried on the Internet or on television? Answer: Organizational decisions such as these are extremely important for success. However, these examples are not made about the reporting organization. Rather, they are made within the organization in connection with some element of its operations. The general term “accounting” refers to the communication of financial information for decision-making purposes. Accounting is then further subdivided into (a) financial accounting and (b) managerial accounting. [2] Financial accounting is the subject explored in this textbook. It focuses on conveying relevant data (primarily to external parties) so that decisions can be made about an organization (such as Motorola or Starbucks) as a whole.
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Thus, questions such as the following all fall within the discussion of financial accounting: Do we loan money to Company C?  Do we sell on credit to Company C? Do we recommend that our clients buy the ownership shares of Company C? They relate to evaluating the financial health and prospects of Company C as a whole. Managerial accounting is the subject of other books and other courses. This second branch of accounting refers to the communication of information within an organization so that internal decisions (such as whether to buy or rent a building) can be made in an appropriate manner. Individuals studying an organization as a whole have different goals than do internal parties making operational decisions. Thus, many unique characteristics have developed in connection with each of these two branches of accounting.
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