Accounting is an art of systematically keeping the record of business events and transactions, so as to ascertain the financial position and profitability of the company at the end of financial year. It is not exactly same as finance. Technically, finance is a part of economics which is concerned with resource allocation and management.
While accounting aims at providing financial information of the company to the users for the purpose of rational decision making, finance focuses on matters relating to money, investment, credit, banking, and markets. Many think that accounting and finance are one and the same thing, but these are two different disciplines. This article explains the concept and difference between accounting and finance.
Content: Accounting Vs Finance
|Basis for Comparison||Accounting||Finance|
|Meaning||Accounting is an art of recording and reporting of the monetary transactions of a business.||Finance is the science of management of funds of a business|
|Branches||Financial Accounting, Management accounting, Cost accounting, Tax Accounting etc.||Private Finance, Public Finance, Corporate Finance etc.|
|Career||Accounting professionals can become accountants, auditors, tax consultant, etc.||Finance professionals can become an investment banker, financial analyst, finance consultant, etc.|
|Division||Accounting is a part of finance.||Finance is not a part of accounting.|
|Objective||To provide information regarding the solvency status of the company to the readers of the financial statement.||To study the capital market and funds of business for making future strategies.|
|Tools||Income Statement, Balance Sheet, Cash flow Statement etc.||Risk Analysis, Capital Budgeting, Ratio Analysis, Leverage, Working Capital Management etc.|
Definition of Accounting
Accounting is the complete process of identifying, recording, classifying, summarizing, reporting, interpreting and analyzing the financial information. It is an art of systematically recording the transactions, for keeping a proper track of financial statements on the basis of Accounting Standard (AS). With the help of the financial statement of an entity, internal audit, and tax audit is conducted at the end of the financial year.
This financial statement is readable to the users after the audit, who can view the performance and position of the business for a particular period. The users of the financial statement include all the stakeholders such as creditors, debtors, lenders, suppliers, investors, shareholders, employees, etc. who are
Definition of Finance
Finance is the science of the acquisition and allocation (i.e. Spending or investment) of funds effectively. It is a broader term, which studies about money and capital market along with the arrangement and management of funds by business. The major aspect of finance is the “time value of money” i.e. the value of money changes over time.
It helps in analyzing any budget for choosing an optimum investment plan, which lowers the risk factor for a firm.
Key Differences Between Accounting and Finance
- Accounting is a methodical record keeping of transactions of business while Finance is the study of the management of funds in the best possible manner.
- Accounting is a subset of Finance
- The accounting information is helpful for the users of the financial statement for understanding the financial position of the business while Finance is useful in forecasting the performance of the entity in the future.
- Accounting uses 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. are financial tools.
- There are four branches of accounting while there are only three branches of finance.
Accounting and Finance both are a part of economics. Both these entities are dependent on each other, such as accounting is a part of finance and finance is dependent on accounting. The financial analysis is done with the help of the financial statement, submitted by the auditor. In other words, they are very closely interconnected, or we can say, the end of accounting is the beginning of finance.
In every sphere of business, Accounting and Finance are involved in such a way that business cannot survive for a long time without them. If you want to know its importance, just imagine what would be the condition of a company if both of them were not there. There will be no records of transactions, no profits could be determined, there won’t exist any basis on which the inventories and investments would be valued, management of capital is unimaginable, risk factor will increase, no comparison could be made, budgeting and analysis of cash would not be possible, etc. If any person
If anyone wants to make a career in accounting and finance, first of all, the choice of career is great because of diverse opportunity in banking, advertisement, insurance, marketing, management and so on. And to do so, he has to take accounting and finance degrees.