what is the difference between accounting and finance

7/27/2019 What is the Difference Between Accounting and Finance

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What is the difference between accountingand finance (and economics)?March 21, 2008

Accounting & Finance

I often get asked what is the difference between Finance and Accounting?Well Im going to tell

you, and Ill even throw in a 3 rd category in for you, Economics. For starters, Accounting dates

back centuries, traced as far back as the 12th century to be exact. By the 15th century, it was

widely used among merchants.

Accounting:

Accounting is the preparation of accounting records. This includes measuring, preparation,

analyzing, and the interpretation of financial statements. Accounting is also often referred to asthe voice of business, the language of business, and the heart of business. Mostly because the

financial documents derived from the accounting preparation are widely used among managers,

investors, tax authorities, executives, and many others to see how the company is performing.

Bookkeeping is the method used to record all the financial transactions, essentially the day to

day accounting operations. Luca Pacioli is often referred to as the father of accounting because

he was the first to publish a book regarding the double entry method of bookkeeping. If you ever

heard of debits and credits, those are bookkeeping terms.

There are many governing bodies and organizations. The International Accounting Standards

Board (IASB) governs the general globe. Many countries often adhere to their own standards as

well. Here in the United States, the Generally Accepted Accounting Principles (GAAP) guides the

accounting field and its profession. Some characteristics of GAAP are Relevance, Timeliness,

Reliability, Comparability, and Consistency. Accounting can further breakdown in sub-categories

like Tax, Corporate, Audit, Management, and even Financial Accounting.

Finance:

Finance covers a huge array of subjects, but the three main terms when comparing to accounting

would be: (1) the study of money and capital markets which deals with many of the topics

covered in macro economics (2) management and control of assets and investments, which

focuses on the decisions of individual and financial and other institutions as they choose

securities for their investments portfolios, and (3) managerial finance (business finance) which

involves the actual management of the firm, as well as profiling and managing project risks.

Managerial finance is probably the most important to all types of businesses, whether they are

public or private, deal with financial services or are manufacturers. Managerial finance also

involves analyzing the performance of the firm in order to forecast its future performance. It

involves making decisions regarding working capital issues such as level of inventory, cashholding, credit levels, etc.
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Economics:

Economics has two sections, microeconomics and macroeconomics. Microeconomics is study

focusing at the firm level, while macroeconomics focuses more at the policy and regulatory

levels. Accounting uses principles to justify many of its actions, while Economics uses

assumptions to simplify a situation. Many economics decisions as based on certain assumptions.

When the assumptions dont hold then the specific decision may also be affected.

The key principles for economics are opportunity cost, diminishing returns, the marginal principle,

spillover, and the reality principle.

The Difference Between Finance and Accounting Degrees

Posted by:Julian HooksPosted date: February 28, 2013 In:Accounting, Education & Degrees

While many similarities exist between thefinanceandaccountingcareer fieldsincluding a fast rate of growth in

the coming years, as predicted by the Bureau of Labor Statisticsthe two are by no means synonymous. A

bachelors degree in accounting and a bachelors degree in finance prepare students for distinctly different

professions, and prospective students should explore both fields carefully before deciding upon either course of

study.

Accounting and Finance Defined

Accounting can be broadly defined as the preparation, evaluation and management of financial records, while

finance is best described as the study and management of investments. Accountants are therefore more

concerned with budgets, audits, taxes and business financial operations, while financial analysts are typically

experts in stocks, bonds and various other financial products available to corporate or individual investors.

Accountants deal with concrete numbers expressing real sums in present time, such as accounts payable and

receivable or taxes owed. Financial analysts deal with more ephemeral or uncertain figures, including projected

returns on investment (ROI) or stock prices. Accountants manage todays revenue, and financial analysts

anticipate tomorrows profits.

Degrees in Accounting and Finance

Because accountants and financial analysts must both be proficient in basic computational math and quantitative

analytics, the core competencies required for either bachelors degree overlap to some extent. Coursework in

financial management and/or business administration as well as higher math is usually required for both.

Future accountants are also required to take classes in business law, business administration, marketing,

accounting ethics, statistics, accounting theory and any number of specialty topics, such as fraud, taxation or cost

management.Financial analysis degree programsemphasize international and domestic finance and trade, risk

management, corporate finance, financial engineering, and portfolio management, among other specialized

topics.

Students enrolled in either degree program should consider concentrating their electives on the areas ofexpertise necessary to one or more of the career options below.
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Careers in Accounting

Accounting professions fall into two primary categories: accountants and auditors. Accountants generally work

within a business or other entity; auditors are often employed by external auditing firms that routinely check other

businesses, usually within a certain industry or sector, for financial improprieties or mismanagement. However,

some accountants and auditors are employed directly by businesses or individuals (consulting) and internally

monitor financial documentation.

Accountancy itself can be subdivided into public, management and government specializations. Public

accountants are responsible for recording and managing all the financial documents their clients, usually

corporations, individuals or government entities, are required by law to disclose; many focus exclusively on tax

law and preparation. Forensic accountants work within the subcategory of public accountants and investigate or

analyze financial crimes such as embezzlement, contract violation and securities fraud. Certified Public

Accountants (CPAs) are masters of the accounting trade, having received extensive training in financial and tax

reporting. CPAs must pass one of the most rigorous post-graduate examinations in the world, which has a less

than 50% first-time pass rate, and typically command top employment and salary prospects within their field.

Unlike public accountants, management accountants work for private companies and oversee internal financial

documentation, including budgets and cost analytics. Their duties overlap with those of financial analysts in that

management accountants may also advise on investment opportunities and asset management. Government

accountants specialize in financial operations subject to government oversight or conducted by government itself,

and their employers are both private and public, from the municipal to the federal level.

Careers in Finance

Some financial analysts can be categorized according to their expertise in popular investment products. For

instance, fund managers buy, sell and project the future value of hedge or mutual funds; portfolio managersoversee their clients entire investment portfolios, which may include stocks, bonds and real estate.

Other financial analysts are adept at certain analytical or financial activities, such as ratings analysis, the study of

a business or governments ability to repay its debts and risk analysis, which involves projecting ROI on various

investments and advising clients accordingly.

Another way of dividing financial analysts is buy-side versus sell-side. Buy-side financial analysts provide

investment procurement and management strategy for their clients; sell-side financial analysts advise sales

teams disbursing stocks, bonds and other financial products.

The Bottom Line

Perhaps the most important consideration when differentiating between careers in accounting and financial

analysis is personality. Accountants must have a high tolerance for detail and strong organizational, quantitative

and analytical skills, as well as the ability to self-manage and work independently. Their duties are process-

oriented and require both concentration and precision.

Although financial analysts share accountants need for strong mathematical and analytical skills, they are

uniquely required to make good decisions quickly, often under tremendous pressure. Their work is results-

oriented and requires confidence and strong communication skills.


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Given these important distinctions, a wide variety of personalities can be well-served by a bachelors degree in

accountingor financial analysis.

Accounting is basically the system of making records, verifications and reporting of value of

assets, liabilities, expenses and income in the accounts books. The transactions are posted

chronologically to record changes in value of assets and liabilities.

On the other hand, Finance refers to the time, money and risk associated with a specific

business. Finance is different because it works on the accounting information to predict future

trends or to make decisions about the future.

Accounting relates to preparation of accounting records, preparation, analysing and interpretation

of financial statements.

The study of finance consists of the study of money and capital markets (macroeconomics),

investments (management of personal and business portfolios), and managerial finance, the

actual management of the firm.

Accounting is the methodical or precise recording, reporting, and assessment of financial deals

and transactions of a business. Accounting also involves the preparation of statements or

declarations concerning assets, l iabilities, and outcomes of operations of a business. Personal

finance is a management of assets and liabilities in an efficient way. In a way, they are related to

each other and yet they also have differences between each other.

The concept of the matter is accounting is an essential part of finance. It is a sub-function of

finance. Accounting produces information about the operations of a business. The end-product of

accounting is composed of financial declarations such as balance sheets, income declarations

which include the profit and loss accounts, and the declaration of changes in financial position

which includes sources and uses of funds declaration. The data kept in these declarations and

reports aids financial directors in analyzing the previous performance and future inclinations of

the company and in satisfying certain legal duties and responsibilities, such as payment of taxes

and many more. Therefore, accounting and finance are practically closely connected.

One difference is associated with the treatment of funds and the other is associated with decision

making. In accounting, the system of determination of funds; that is, income and expenditures, is

based on the accrual system. Revenue is acknowledged at the point of sale and not when it was

collected. Expenses are acknowledged when they are incurred than when they are paid.

However, in finance, the system of determination of funds is based on cash flows. The revenues
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are acknowledged during the actual receipt in cash as in cash flow and the expenses are

acknowledged when the actual payment is made as in cash outflow.

Another difference between accounting and finance is with respect to their purposes. With

accounting, it aims to collect and present financial information. It furnishes constantly improved

and easily interpreted previous data, present and future inclinations of the company. Meanwhile,

financial director's prime duty and responsibility associates to financial strategy, managing and

controlling, and decision making. Therefore, in a sense, finance starts where accounting ends.

Difference between Accounting and

Finance

Key difference: Accounting is the process of creating and managing financial statements whichrecord the day to day transactions of the business. Finance has a broader scope and isresponsible for initiating transactions to aid in cash, investment and other working capitalmanagement.

Accounting and finance are both forms of managing the money of the business, but they are used for

two very different purposes. One of the ways to distinguish between the two is to realize that

accounting is part of finance, and that finance has a much broader scope than accounting.

Accounting is the practice of preparing accounting records, including measuring, preparation,

analyzing, and the interpretation of financial statements. These records are used to develop and

provide data measuring the performance of the firm, assessing its financial position, and paying taxes.

Finance, on the other hand, is the efficient and productive management of assets and liabilities based

on existing information.

Finance is the study of money and capital markets which deals with many of the topics covered in

macro economics. It is the management and control of assets and investments, which focuses on the

decisions of individual, financial and other institutions as they choose securities for their investments

portfolios. Also, managerial finance involves the actual management of the firm, as well as profiling

and managing project risks.

Another way to look at it is that, accounting analyzes the past expenses and performance of thebusiness. This information is then used by the finance department to make decisions about the future.


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Accounting Finance

Definition Preparation of accounting

records

Efficient and productive

management of assets and

liabilities based on existinginformation

Purpose Measuring, preparation,

analyzing, and interpretation of

financial statements. To collect

and present financial

information.

Decision making regarding

working capital issues such as

level of inventory, cash

holding, credit levels, financial

strategy, managing and

controlling cash flow.

Goal To see how the company is

performing, to monitor day to

day accounting operations, andfor taxing.

To forecast the future

performance of the business.

Tools Balance sheets, profit and loss

ledgers, positional declarations,

and cash flow statements.

Performance reports, ratio

analysis, risk analysis,

estimating break evens, returns

on investment, etc.

Determination of funds Revenue is acknowledged at

the point of sale and not when

it was collected. Expenses are

acknowledged when they are

incurred than when they arepaid.

Revenues are acknowledged

during the actual receipt in

cash as in cash flow and the

expenses are acknowledged

when the actual payment ismade as in cash outflow.

Financial Accounting vs Management

Accounting

DiffenEconomicsBusinessBusiness FinanceAccountingManagement accounting is a field of accounting that analyzes and provides cost information to the

internal management for the purposes of planning, controlling and decision making.

Management accounting refers to accounting information developed for managers within an

organization. CIMA (Chartered Institute of Management Accountants) defines Management
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accounting as Management Accounting is the process of identification, measurement, accumulation,

analysis, preparation, interpretation, and communication of information that used by management to

plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its

resources. This is the phase of accounting concerned with providing information to managers for use

in planning and controlling operations and in decision making.

Managerial accounting is concerned with providing information to managers i.e. people inside an

organization who direct and control its operations. In contrast, financial accounting is concerned

with providing information to stockholders, creditors, and others who are outside an organization.

Managerial accounting provides the essential data with which organizations are actually run. Financial

accounting provides the scorecard by which a companys past performance is judged.

Because it is manager oriented, any study of managerial accounting must be preceded by some

understanding of what managers do, the information managers need, and the general business

environment.

Comparison chartEMBED THIS CHART

Improve this chart Financial

Accounting

Management

Accounting

Format: Financial accounts are supposed to be

in accordance with a specific format

by IAS so that financial accounts of

different organizations can be easily

compared.

No specific format is designed for

management accounting systems.

Planning and

control:

Financial accounting helps in

making investment decision, in

credit rating.

Management Accounting helps

management to record, plan and

control activities to aid decision-

making process.

External Vs.

Internal:

A financial accounting system

produces information that is used by

parties external to the organization,

such as shareholders, bank andcreditors.

A management accounting system

produces information that is used

within an organization, by managers

and employees.

Focus: Financial accounting focuses on

history.

Management accounting focuses on

future & Present.

Users: Financial accounting reports are

primarily used by external users, such

as shareholders, bank and creditors.

Management accounting reports are

exclusively used by internal users viz.

managers and employees.
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Improve this chart Financial

Accounting

Management

Accounting

Reporting

frequency and

duration:

Well-defined - annually, semi-

annually, quarterly

As needed - daily, weekly, monthly.

Optional?: Preparing financial accounting

reports are mandatory especially for

limited companies.

There are no legal requirements to

prepare reports on

managementaccounting.

Objectives: The main objectives of financial

accounting are :i) to disclose the endresults of the business, and ii) to

depict the financial condition of

the business on a particular date.

The main objectives of Management

Accounting are to help managementby providing information that used by

management to plan, evaluate, and

control.

Legal/rules: Drafted according toGAAP - General

Accepted Accounting Procedure.

Drafted according to management

suitability.

Accounting

process:

Follows a full process of recording,

classifying, and summmarising for

the purpose of analysis and

interpretation of the finnancial

information.

Cost accounts are not preserved under

Management Accounting. The

necessary data from financial

statements and cost ledgers are

analyzed.

Segment reporting: Pertains to the entire organization or

materially significant businessunits.

May pertain to smaller businessunits

or individual departments, in addition

to the entire organization.

Nature of

information:

Focus on quantitative information Focus on both qualitative

andquantitative information

The Difference Between Finance and Accounting

Finance and Accounting are two separate disciples that often are

lumped together (as we obviously have done). At a high level,Finance is the science of planning the distribution of a business
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assets. Accounting is the art of the recording and reportingfinancial transactions. People tend to group Finance andAccounting because both functions deal with the administration ofa business assets.

Those who work in the financial department of a business areconcerned with planning the distribution of the business assets.This includes the coordination of capital investments and debtbacked investments for the purpose of improving the value of thebusiness. Those in Finance also plan the exit strategy for theinvestors of the business, which is the way in which those thatinvest in the business receive their financial reward. The financial

goals and objectives of the business are designed by thebusiness Chief Financial Officer, who is supported by peoplefocused on Financial Analysis, Financial Management,Budgeting, Purchasing, and Accounting.

Those who work in the Accounting function of a business areconcerned with tracking and reporting the financial transactions ofa business. Those in the Accounting field are responsible formanaging the general ledger, cash flow management, collections,

recognizing revenue, analyzing profitability, reporting earnings,managing debt, andof coursepaying taxes. Accountantsresearch and report the financial transactions and health of thebusiness using a standard set of rules and principles, known asthe Generally Accepted Accounting Principles (GAAP), as well asSection 446 of the Internal Revenue Code. Jobs in theAccounting function include Financial Reporting Accountants,Auditors, Bookkeepers, Accounts Receivable Clerks, Accounts

Payable Clerks, Controllers, Treasurers, and Tax Accountants.Typically, the entire Accounting organization will report into theChief Financial Officer.

Broadly speaking, Finance revolves around planning futurefinancial transactions while Accounting revolves around reportingpast financial transactions. While these are two separatefunctions that require different skill sets, they do both revolvearound the management of assets; therefore, they are grouped

together more often than not.


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what is the difference between accounting and finance

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