Bookkeeping for Tax vs Managerial Accounting

The key to understanding Bookkeeping in a simple and holistic way starts with a basic understanding of the TWO broad reasons bookkeeping is done.

"Bookkeeping for OTHERS" vs "Bookkeeping for SELF"

1) The first reason to do bookkeeping is to meet requirements placed on you by OTHERS.

This only applies if you are living in a commercially advanced society and engaged at a level where these expectations exist.

In the United States, Bookkeeping for the requirements of others is referred to as "Bookkeeping for Tax Accounting" and/or "Bookkeeping for Financial Accounting".

The baseline work itself is identical. In the case of Tax Accounting, the work is presumed to be for Federal, State or Local governments. In the case of Financial Accounting the work is presumed to be for Banks or Investors.

NOTE: When speaking generically we will often refer to "Bookkeeping for Others" as "Bookkeeping for Tax/"Financial Accounting" to simplify the dialogue.

2) The second reason to do bookkeeping, beyond what is required for others is for for SELF-BENEFIT. This is something most will want to do in one form or another no matter the society they are living in.

In the United States, Bookkeeping beyond what is required for others is referred to as "Bookkeeping for Managerial Accounting" and/or "Bookkeeping for Cost Accounting".

In managerial accounting the idea is you are doing things to help you "manage yourself, others and resources" better. In Cost Accounting, you are specifically trying to quantify costs in an effort to reduce them or optimize them for a given level of expectations.

NOTE: When speaking generically we will often refer to "Bookkeeping for Self" as "Bookkeeping for Managerial/Cost Accounting" and sometimes we'll say "Bookkeeping for Cost/Managerial Accounting"

"Bookkeeping for OTHERS" vs "Bookkeeping for SELF"

is the same as...

"Bookkeeping for Tax Accounting" vs "Bookkeeping for Managerial Accounting"

and that's generally the same as...

"Bookkeeping for Financial Accounting" vs "Bookkeeping for Cost Accounting"

thus you will see us often write...

"Bookkeeping for Tax/Financial Accounting" vs "Bookkeeping for Managerial/Cost Accounting"

Understanding the differences between Bookkeeping and Accounting for OTHERS (Tax/Financial Accounting) and Bookkeeping and Accounting for SELF (Managerial/Cost Accounting is the key to simple understanding.

Next comes the understanding related to doing only the minimum required for your Tax/Financial Accounting needs. You will want to do this work in a very simple manner that only meets the requirements of Others without exceeding them, and without mixing in your own requirements in a way that over complicates things for this subset of bookkeeping needs. Often times an effort to be more efficient in Bookkeeping by mixing a lot of things together typically backfires.

The document below presents a side by side comparison of Bookkeeping for Tax Accounting vs Bookkeeping for Managerial Accounting. Become familiar with this and the rest becomes much simpler to follow.

Bookkeeping for Tax vs Managerial Accounting

The four page docuement for this information.

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The Six Box Model

The "6 Box Model" can help reinforce this concept of Tax vs Managerial Accounting. It also includes real world Business Systems assigned to the different boxes for deeper clarity.

This diagram represents a "chronological order of data flow" , not a prioritization of what you need to learn first.

The reason Managerial Accounting is on top, when we are prioritizing Tax Accounting first educationally, is because procedurally, a lot of managerial accounting transpires before your information hits your bank accounts, which is where Tax and Financial Reporting starts.

No matter how different everyone's Managerial Accounting processes are, the Tax Accounting portion of their work is nearly identical, it's a great way to bring everyone together for education on the common items first before they regress a bit to their own individual managerial accounting processes that are more industry and trade specific.

For more on this model, please visit the Home Page and the Orientation Process Menu found at