Entities large enough to hire accountants tend to keep a different set of books for each of three purposes: 1) Dealing with the tax authorities, 2) Communicating with their own investors and creditors, and 3) Allowing their managers to engage in informed internal deliberations about mergers, spin-offs, prices, wages, and so forth. That is to say, there are three sorts of accounting: tax, financial, managerial. The two sets of books that are designed for external communication, the tax and financial accounting books have a fascinating off-setting feature. The normal temptation in financial accounting will be to overstate revenue, and the normal temptation in tax accounting will be to understate it. If you are a potential investor, and if you suspect the books they’re showing you are a bit too rosy, you’ll want to see the books they show the tax authorities. At any rate, in what follows we will chiefly discuss financial accounting. There is a good deal of drama ...