• Financial Accounting
  • Managerial and Cost Accounting

The two types of accounting a small business meets first are financial accounting, which reports the business's results in a standard way, and managerial accounting, which gives the owner the information to make decisions. Around them sit tax work, auditing, and the specialized accounting used by governments and not-for-profit organizations. OpenStax's Principles of Accounting names eight "Major Categories of Accounting Functions": auditing, taxation, financial accounting, consulting, accounting information services, cost and managerial accounting, financial planning, and entrepreneurship.

Billed publishes this page. Definitions are quoted from OpenStax, Principles of Accounting, Volume 1: Financial Accounting, chapter 1, and Volume 2: Managerial Accounting, section 1.2, opened on October 30, 2026. Each type links to a fuller page where one exists.

Financial Accounting

OpenStax's chapter 1 key terms define financial accounting as accounting that "measures the financial performance of an organization using standard conventions to prepare financial reports". Its section 1.5 adds: "Financial accounting is historical in nature and is prepared using standard conventions, called accounting standards or GAAP."

The day-to-day records behind it are covered in what is bookkeeping and double-entry bookkeeping. When income and expenses are recorded is covered in what is accrual accounting and cash vs. accrual accounting.

Managerial and Cost Accounting

OpenStax defines managerial accounting as a "process that allows decision makers to set and evaluate business goals by determining what information they need to make a particular decision and how to analyze and communicate this information", and cost accounting as the "recording and tracking of costs in the manufacturing process". Section 1.5 explains how the two differ: "cost accounting takes a primarily quantitative approach, whereas managerial accounting takes both quantitative and qualitative approaches."

OpenStax's Volume 2, section 1.2 uses the terms more loosely: "Also known as management accounting or cost accounting, managerial accounting provides information to managers and other users within the company in order to make more informed decisions." For how cost accounting works and how it differs from financial accounting, see what is cost accounting.

Tax Accounting

Section 1.5 describes taxation as one of the categories: "There are many taxes that businesses are required to pay." It adds: "Since accountants have an understanding of various tax laws and filing deadlines, they are also well-positioned to offer tax planning advice." Tax rules depend on where you are, so ask your accountant which apply to you. For US tax topics, see the guide to small business tax filing.

Auditing

OpenStax defines auditing as the "process of ensuring activities are carried out as intended or designed". For what an audit of the accounts involves, see what is an accounting audit.

Governmental and Not-for-Profit Accounting

  • Governmental accounting: "process of tracking the inflows and outflows of taxpayer funds using prescribed standards".
  • Not-for-profit (NFP) accounting: "including charities, universities, and foundations, helps ensure that donor funds are used for the intended mission of the not-for-profit entity".

A small business doesn't keep these kinds of accounts, but its customers can include government agencies and charities.

Worked Example: One Month, Two Views (sample figures)

These are sample figures for a fictional design studio, invented for this example. In one month it invoices two clients and has these costs:

  • Client A: invoiced $7,000.00; freelancer and stock image costs for the job $3,000.00.
  • Client B: invoiced $5,000.00; costs for the job $2,500.00.
  • Rent and software for the studio: $1,500.00.

Financial accounting view (one figure for the month): $7,000.00 + $5,000.00 − $3,000.00 − $2,500.00 − $1,500.00 = $5,000.00 net income.

Managerial accounting view (by client):

  • Client A: $7,000.00 − $3,000.00 = $4,000.00
  • Client B: $5,000.00 − $2,500.00 = $2,500.00
  • Less the studio's shared costs: $4,000.00 + $2,500.00 − $1,500.00 = $5,000.00

Both views reach the same $5,000.00. The managerial view also shows that Client A's work brought in $4,000.00 and Client B's $2,500.00 before shared costs, which the owner can use when pricing the next job.

Where Billed Fits

Billed's financial reporting page says: "All reports in Billed can be exported for use with your accountant, bookkeeper, or tax software."

Related Guides

FAQ

What are the main types of accounting?

Financial accounting and managerial accounting are the two a small business meets first, alongside tax work and auditing. OpenStax lists eight major categories of accounting functions: auditing, taxation, financial accounting, consulting, accounting information services, cost and managerial accounting, financial planning, and entrepreneurship.

What is the difference between financial and managerial accounting?

OpenStax says financial accounting "measures the financial performance of an organization using standard conventions to prepare financial reports." Managerial accounting helps decision makers set and evaluate business goals with the information each decision needs.

Is cost accounting the same as managerial accounting?

The terms overlap. OpenStax's Volume 2 treats cost accounting as another name for managerial accounting, while its Volume 1 says "cost accounting takes a primarily quantitative approach, whereas managerial accounting takes both quantitative and qualitative approaches."

What is governmental accounting?

OpenStax defines it as the "process of tracking the inflows and outflows of taxpayer funds using prescribed standards."

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