It is important to know the five differences between Accounting and Finance since even though they sometimes seem similar; they are actually two totally different disciplines. Accounting and Finance are not synonyms but are in a way connected with one another. Both Accounting and Finance have their separate importance in various fields including tax, business, and education. In this article, we discuss and try to resolve the confusion between the two.
Resource: Accounting Degree vs. Finance Degree
Let us begin by helping you to better understand the meanings of Accounting and Finance.
This is essentially the complete process of identifying, interpreting, classifying, analyzing, summarizing, reporting, and recording financial information. It is the art of systematically recording transactions for the purpose of maintaining a proper record of financial statements based on Accounting Standard (AS). At the end of every financial year, internal and tax audits are conducted with the aid of an entity’s financial statements. After the audits, the financial statement will be readable to users, making it possible to view the performance and position of a business during a specified period. Users of a financial statement include stakeholders, investors, suppliers, creditors, debtors, and employees.
This is the science of spending or investing, which translates to the effective allocation and acquisition of funds. Finance relates to the study of capital markets and money, along with the management of funds. A major aspect of finance is that the value of money changes over time, which contributes to budgeting and analyzing when looking for a solid investment plan, effectively lowering the risk factors for any given business.
To ideally discern the five differences between Accounting and Finance, you must first have a basis for comparison. The five differences between Accounting and Finance are;
Accounting is the art of recording and reporting a business’s monetary transactions. Accounting, therefore, methodical keeps records of the business transactions. On the other hand, Finance is the science of managing the funds of said business, a study of how to best manage the funds.
Accounting has four branches; Financial Accounting, Tax Accounting, Cost accounting, and Management accounting. Finance, on the other hand, has three branches, namely Corporate Finance, Private Finance, and Public Finance.
The qualified professionals in Accounting can become auditors, accountants, and tax consultant, while the qualified professionals in Finance can become financial analysts, investment bankers, and finance consultants.
The objective of Accounting is to provide information related to the solvency status of a business company to anyone reading the financial statement. Accounting information helps the users of a financial statement to better understand the financial position of a business. On the other hand, the objective of Finance is to study the monetary funds of a business and the capital market in order to make sound business strategies for the future. Finance is useful in forecasting the future performance of an entity.
The Accounting process uses tools such as balance sheets, income statements, and cash flow statements. On the other hand, the tools used in Finance include working capital management, leverage, ratio analysis, capital budgeting, and risk analysis.
Regardless of the five differences between Accounting and Finance, they are both a part of economics and dependent on each other. Finance is dependent on Accounting while Accounting is a part of Finance.
Accounting and Finance are involved in every business sphere such that no business can survive without both. The five differences between Accounting and Finance reveal the importance of both and the condition a business would be in if both were lacking. No profits can be determined without records of transactions, no basis on which to value inventories and investments would exist, capital management would be unimaginable, the factor of risk would increase, comparisons would be impossible and budgeting or analysis of cash would be impossible.