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Difference between accounting and Finance


Accounting vs Finance

Although Finance is a broader term with respect to that of Accounts. In general, we can say that Finance and Accounting are two different faces of the same coin.

Difference Number 1 ( Purpose )

The purpose of accounting is to accumulate and report on financial information about the performance, financial position, and cash flow. This helps to make decisions on how to manage the business or make an investment.

The purpose of Finance is to help organizations/people save, manage, and raise money efficiently. This helps companies/people achieve long-term futuristic goals successfully.

Difference Number 2 ( Focus )

Accounting focuses on the daily movement of money within companies or institutions that require fastidious accountants with details.

Finance focuses on the broad management of money and assets. It also involves planning for long-term financial growth of the organization that requires highly qualified and experienced experts.

Difference Number 3 ( Basic Aspects )

The basic aspects of accounting are Accounting practices, Accounting Ethics, Business & Tax Law and Accounting theory.

The basic aspects of finance are Macroeconomics, Microeconomics, and Financial Engineering.

So, we can see that both accounting and finance are two different terms. But, as a matter of fact, efficient management of both Accounting and Finance is the key to the smooth functioning and rapid growth of an organization.

Note that, There is no finance without accounting. As many have stated, accounting is recording the past. Profits, cash flow and what the balance sheet looks like. Finance typically takes this data and works out debt to equity ratios, EBITDA, and a number of other measurements that might help determine how the company is funded, whether it is healthy, and its real profitability.

Finance tries to look into the future as well. People in finance, as opposed to accounting, are generally trying to determine the credit-worthiness of a company, or, if employed by the company, the best way to fund the company's activities. But while numbers (almost, if you can verify) never lie, the past can mislead. Understanding a company's true value and potential requires understanding their market, growth potential, management capability, competitive edge, and other competitive and market factors. I have worked many years in finance and find that many people look at the numbers more than than they look at the management and markets the company is involved in.

History is important in terms of customer relationships, ability to ride out downturns, the owners’ reinvestment in their companies.

 Accounting records much of this. Finance analyzes this and determines the creditworthiness of a company. Once this is done, finance can help determine how a company might better structure its funding - equity, mezzanine debt, operating leases, senior debt, finance leases, etc. The best balance is determined by many factors.

As a rule, accounting is a sub-set of finance. Where finance takes the big picture view of money and money management issues, accounting is primarily concerned with the accurate recording and reporting of the impact that individual financial transactions have on the financial position of the business.

Finance: is a science that deals with the management, acquisition and circulation of money, the provision of banking facilities, the granting of credit, the making of investments and the allocation of assets and liabilities.

 Finance deals with the procurement and effective use of funds and directly relates to the amount of profits that adequately compensate the owners for the cost and risks borne by the business.Accounting: is a recognition, recording and reporting system for financial transactions that impact on the financial position and performance of a business and does so by adhering to centuries-old concepts, principles and conventions.

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