Accounting and Finance are terms used interchangeably, but both confuse people. At the same time, both are related to the administration of an institution and an organization’s money and assets. It is important to know about both terms to evaluate a company’s financial health and organizations to make financial decisions.
Accounting vs Finance
The main difference Between Accounting and Finance is that Accounting refers to ensuring that all the records of business events and financial transactions are entered into a financial transaction. On the other hand, finance refers to how an individual or any organization generates and uses its capital and assets for his/her company.
The main aim of accounting is to provide financial information to users for proper strategic decision-making and financial attention relating to money, credit, banking, and the market. It involves recording, maintaining, and managing the company’s assets on a day-to-day basis, which helps the company manage its business financial statements.
In finance, the management of money and assets can be looked at through the lenses of growth and strategy. Finance professionals ensure that the capital (funding) of the company is enough at the time of need and that funds are allotted properly. Finance helps solve the budget problem for choosing any optimum investment plan.
Comparison Table Between Accounting and Finance
| Parameter of comparison | Accounting | Finance |
| Definition | Accounting is a systematic process of recording and reporting monetary transactions of businesses concerned with day-to-day activities. | Finance is a science that manages funds of a business |
| Objective | Accounting has objective to provide information about the financial health of and position of affairs of a business | Finance has an objective of wealth maximization; profit-making and studying the capital market |
| Approach | Its approach is backward-looking which means accountants record transactions and events that have already happened in the past. | Its approach is forward-looking which means finance managers look at a plan of action and targets to achieve. |
| Responsibility | The Accountant has responsibility for determining tax liabilities and ensuring statutory compliance | Finance managers have the responsibility of forming strategies to create value for an investor |
| Interdependence | It supports the finance team to provide accurate and relevant data of the company | It sets the correct pace for growth and determines that targets achieved |
| Division | Accounting is part of finance | Finance is not part of accounting. |
What is Accounting?
In accounting, all the monetary transactions are systematically processed, recorded, and summarized daily. A business further reveals the profit and loss during a certain period.
It looks at all the transaction that has been done in the past. That’s why accounting is called a backwards-looking process. Here, accountants keep running the executive side of operations. They regularly look at every single flow of transactions that is recorded and reflected in bank accounts. They will ensure statutory compliance and determination of tax liabilities.
Accounting is a disciplined activity that requires detail and procedure orientation. Here, rule-based and strong quantitative and computation skills are needed. An accountant must have proficiency in auditing, taxation, management accounting, business laws (like GAAPS, IFRS, etc.), and cost accounting. The primary objective of accounting is an effective and accurate transaction recording.
Accountants deal with items of revenue and expenses of all day, which are used to identify abnormal events to restore profitability. The accounting team always supports finance by providing accurate and relevant stats about the company.
What is Finance?
Finance is a border term that looks upon the acquisition and allocation of funds effectively. It refers to money management and investment for the individual and the organization. Therefore, finance managers look for the funds distributed among various class assets to get the maximum possible return and achieve the target without risk in the assigned period.
Generally, Finance managers are looking for plans of action and targets to be achieved; that’s why finance is called a forward-looking process. In finance, finance managers predict the future results that enable business to be well established.
Finance is a research-oriented field where a good knowledge of the current market and industry situation must be needed. A finance manager must have proficiency in corporate finance, capital markets, derivatives, portfolio management, and financial modelling.
The primary objective of finance is the maximization of shareholder value with which any business operates. Their expertise sources funds for the company cost-effectively, and their strategic decision directly affects its fate. Financial managers predict the future and precautionary measures for the company’s survival.
Main Difference Between Accounting and Finance
- Accounting is recording and reporting all the transactions that happened in the company’s past. In contrast, finance is the science of managing funds in the best manner such that it profits the company.
- Accounting looks at past business transactions, whereas finance looks at future business transactions.
- Accounting helps in understanding the company’s financial position, whereas finance helps predict the future performance of any company.
- Accounting activity is driven by specific rules like what, when, how, etc., whereas financial activity is driven by analysis that needs the expertise and capability of financial managers.
- Accounting is used in public and private accounting firms and corporations, whereas finance is used in banks, corporations, and consultancy.
- Accounting is responsible for tax liabilities and statutory compliance, whereas finance is responsible for forming strategies for creating value in firms.
Conclusion
Accounting and finance are interdependent for driving the profit of the corporation. Both give efforts in good coordination and ensure the company’s growth.
On the one hand, the accounting team supports finance by giving required and accurate data on the company’s past transactions. In contrast, the financial manager applies their expertise and form strategies for creating value in a company.
Accounts and finance are involved in such a way that every business cannot run without them. There are lots of opportunities for a career in accounting and finance
References
- https://www.sciencedirect.com/science/article/pii/0148296395000844
- https://onlinelibrary.wiley.com/doi/abs/10.1002/1099-1174(200006)9:2%3C119::AID-ISAF182%3E3.0.CO;2-Y
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