Undoubtedly, Finance and Accounting are the two most important elements required for running any successful business or organization. Both of these terms are used interchangeably but at the same time, each of the two has its own importance and role to play in a business organization. If you are good at working with financing figures or you have decided to pursue your career in finance and accounting, it’s very necessary to have at least working knowledge of both disciplines. Being a business professional, you need to take care of all the aspects especially when it comes to evaluating the financial health of your company, finance and accounting are the two pillars on which the foundation of your business relies upon. Now the question arises what is the difference between Finance vs Accounting? Although both of them are somehow associated with each other still there are minute differences that need to be studied.
Both Finance and Accounting involve managing money and financial documents. While accounting allows the flow of money in and out of an organization. On the other hand, Finance has a broader meaning and is more about managing assets and liabilities. There are a lot of differences between Finance and Accounting, but the main difference is that the people who are associated with finance mostly focus on planning and interpreting the financial transactions of a company. While accounting records, analyzes, measures, and interprets the information and data regarding the financial performance of the business as a whole.
This was an overview of Finance and Accounting. Now we are going to discuss both of them in detail, advantages, uses and the main differences between Finance vs Accounting. So let’s start with a brief introduction.
Finance is usually used as a term associated with the management of money, funds, budgeting, lending, forecasting, saving, investing, and borrowing. It is the use of financial data and information to interpret and analyze different trends regarding investments and opportunities. In simpler words, we can say finance is well-directed management of money and investments for individuals, corporations, organizations, and even the government. It refers to a number of ways by which an individual or an organization generates and uses its capital, how they use their money in various sectors such as personal finance, corporate finance, public finance, etc. Finance is a vital function of any business that evaluates, governs, and monitors the overall investments and assets of an organization.
Types of Finance
- Personal Finance: It involves financial planning for individuals such as retirement, mortgages, banking, etc
- Corporate Finance: It involves a number of financial activities for running a successful business such as budgeting, investments, money, etc
- Public Finance: Includes tax, budgeting, money bills, and other policies related based on rules and regulations provided by the government.
Accounting has been popularly called the “Language of business” because it is almost used in every activity performed within an organization. It is the process of recording, maintaining, identifying, and communicating an organization’s financial results. It compiles and processes the financial information or data to produce financial models for the benefit of the business. Apart from this, it also generates a final statement of all the financial transactions made over a period of time that determines the company’s financial position, expenditure, operations, and cash flow. Although accounting is not so much concerned with a company’s financial decisions it keeps a track of the financial health of a business at a specific point in time on which the financial activities are generally based upon. It includes income statements, balance sheets, statements of cash, and the overall financial structure of a company at a specific period of time.
Types of Accounting
- Financial Accounting: It processes and creates financial statements such as balance sheets, income statements, bills, etc within an organization
- Managerial Accounting: It is mostly used by stakeholders to make business-related decisions like forecasting, budgeting, etc
- Cost Accounting: It determines the cost of products associated with a particular business. It allows businesses to produce the product and decide a suitable cost for it.
Differences between Finance Vs Accounting
- Finance and accounting both operate on different levels of management in an organization. While accounting records and provides us a snapshot of the overall financial stability of a business using past and present data transactions. On the other hand, Finance is a broader term that stresses more on the future growth of a business. It is the process of managing and analyzing money in a proper way.
- Accounting professionals can become accountants, auditors, tax examiners, management analysts, etc. On the other hand, finance professionals have a scope of becoming financial analysts, budget analysts, financial managers, investment bankers, finance service sales agents, etc.
- Accounting is a part of Finance but Finance is not a part of accounting and it is one of the main differences between Finance vs Accounting.
- For becoming an accounting professional, you must have a bachelor’s or masters in accounting, CA, CPA, ACCA, CMA. While a finance professional needs to have bachelors in finance, accountancy, MBA, PRM, CFP, etc
- The salary of an accounting professional ranges from $69,000- $90,0000 whereas the expected salary of a financial analyst ranges from $84,000 – 110,000
- The main objective of accounting is to provide the financial status of the company to the readers of the financial statement. While finance studies the capital market and funds required for making business strategies.
- The main tools of accounting include income statements, balance sheets, cash flow statements, etc, whereas risk analysis, budgeting, ratio analysis, and leverage are some of the important tools of finance.
- For accounting, you need specialized skills and knowledge about basic accounting tools whereas for finance you need to have knowledge about the stock market, trades, investments, etc.
These were some of the main and crucial differences between Finance vs Accounting. I hope this article was helpful and it must have cleared your doubts regarding various aspects of Finance and Accounting and why there is a need to study them separately.