Accounting is the art of systematically keeping records of business events and transactions, so as to ascertain the financial position and profitability of the company at the end of the financial year. This is not exactly the same as finance. Technically, finance is the part of the economy that deals with the allocation and management of resources.
While accounting aims at providing users with corporate financial information for rational decision-making purposes, finance focuses on matters related to money, investments, credit, banking and markets. Many think that accounting and finance are one and the same thing, but these are two different sciences. In this article, we will explain the concepts and differences between accounting and finance.
Definition of Accounting
Accounting is a complete process for identifying, recording, classifying, summarizing, reporting, interpreting and analyzing financial information. It is the art of systematically recording transactions to keep track of proper financial statements based on Accounting Standards (USA). With the help of an entity’s financial statements, internal audits and tax audits are carried out at the end of the financial year.
These financial reports can be read by users after the audit, who can see the performance and position of the business for a certain period. Users of financial statements include all stakeholders such as creditors, debtors, lenders, suppliers, investors, shareholders, employees, etc.
Definition of Finance
Finance is the science of obtaining and effectively allocating (i.e. spending or investing) funds. It is a broader term, which studies money and capital markets along with the regulation and management of funds by businesses. The main aspect of finance is the “time value of money” i.e. the value of money changes over time.
It helps in analyzing each budget to select the optimal investment plan that lowers the risk factors for a company.
- Accounting is the methodical recording of business transactions while Finance is the study of managing funds in the best way.
- Accounting is part of Finance.
- Accounting information is useful for users of financial statements to understand the financial position of a business, while Finance is useful in estimating the entity’s future performance.
- Accounting uses the Income Statement, Balance Sheet, Cash Flow Statement, etc. as its tools. On the other hand, Leverage, Capital Budgeting, Ratio Analysis, Risk Analysis, Working Capital Management, etc. Is a financial tool.
- There are four branches of accounting while there are only three branches of finance.
Interdependence
Accounting and Finance are both parts of economics. These two entities are interdependent on each other, just as accounting is a subset of finance and finance depends on accounting.
Financial analysis is carried out with the help of financial statements, submitted by auditors. In other words, they are very closely related, or we can say, the end of accounting is the beginning of finance.
Conclusion: In every field of business, Accounting and Finance are involved in such a way that a business cannot survive for long without them. If you want to know their significance, just imagine what the company would be like if they weren’t there. There would be no record of transactions, no profits could be determined, there would be no basis on which inventories and investments would be valued, capital management would be inconceivable, risk factors would increase, no comparisons could be made, cash budgeting and analysis would be impossible, etc.
If anyone wants a career in accounting and finance, first of all, the career choice is great because of the wide range of opportunities in banking, advertising, insurance, marketing, management and so on. And for that, he had to take a degree in accounting and finance.
