Finance vs Accounting – The important Differences you Should Know
What Is Accounting?
Accounting is “the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least of financial character, and interpreting the results thereof,” according to the American Institute of Certified Public Accountants.
What Is Finance?
According to Investopedia, finance is “a broad term that describes two related activities: the study of how money is managed and the actual process of acquiring needed funds.” The basis of finance is rooted in macroeconomics and microeconomics.
Accounting vs. Finance:
The main difference between finance and accounting is that accounting focuses on the day-to-day flow of money in and out of a company or institution, whereas finance is a broader term for the management of assets and liabilities and the planning of future growth. 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 definitely not
Key Differences Between Accounting and Finance
- Accounting is a carefully planned 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 whileFinance is useful in forecasting the performance of the business in the future.
- Accounting uses Income Statement, Balance Sheet, Cash Flow Statement, etc. as its tools. On the other hand, Leverage, Capital Management, Ratio Analysis, Risk Analysis, etc. are financial tools.
- There are four branches of accounting and there are only three branches of finance.
Discovering the 4 Types of Accounting
*Corporate Accounting – Corporate Accounting is a special branch of accounting which deals with the accounting for companies ,preparation of their final accounts and cash flow statements, analysis and interpretation of companies’s financial results and accounting for specific events like amalgamation, absorption, preparation of consolidated balance sheets.
*Public Accounting – Public accounting refers to a business that provides accounting services to other firms. Public accountants provide accounting expertise, auditing, and tax services to their clients.
*Government Accounting – Government accounting refers to the process of recording and the management of all financial transactions incurred by the government which includes its income and expenditures.
*Forensic Accounting – Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation. “Forensic” means “suitable for use in a court of law”, and it is to that standard and potential outcome that forensic accountants generally have to work. Forensic accountants, also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial. All of the larger accounting firms, as well as many medium-sized and boutique firms and various police and government agencies have specialist forensic accounting departments.
Discovering the 3 branches of Finance
Finance is a term that is used to describe two closely linked activities: the actual means of acquiring funds, and the study of how these funds are managed. Because finance is a wide field, it can further be subdivided into three categories which include personal finance, corporate finance, and public or government finance.
*Personal finance – Personal finance is defined as the management of money and financial decisions for a person or family including budgeting, investments, retirement planning and investments.
*Corporate finance – Corporate finance is the division of finance that deals with financing, capital structuring, and investment decisions. Corporate finance is primarily concerned with maximizing shareholder value through long and short-term financial planning and the implementation of various strategies.
*Public finance – The scope of public finance is not just to study the composition of public revenue and public expenditure. It covers a full discussion of the influence of government fiscal operations on the level of overall activity, employment, prices and growth process of the economic system as a whole.
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