Difference Between Accounting and Finance (With Table)

Accounting and Finance are terms that are often used interchangeably but both terms confused people while both are related to the administration of an institution and an organization’s money and assets. It is important to know about both terms to evaluate the financial health of a company and organizations to take financial decisions.

Accounting vs Finance

The main difference Between Accounting and Finance is that Accounting refers to making sure that all the records of the business events and financial transactions that entered into a financial transaction. On the other hand, finance refers to the way how an individual or any organization generates and uses his capital and assets for his/her company.

The main aim of accounting is to provide financial information to his user for proper strategical decision making, financial attention on relating to money, credit, banking, and market. It involves recording, maintaining, and managing of company’s assets on a day-to-day basis which helps the company to manage its business financial statements.

In finance, the management of money and assets can look at the lenses of growth and strategy. Finance professionals generally ensure that the capital (funding) of the company is enough at the time of need and that funds are allotted properly. Finance helps in solving the problem of budget for choosing any optimum investment plan.

Comparison Table Between Accounting and Finance

Parameter of comparison             Accounting                    Finance
DefinitionAccounting is a systematic process of recording and reporting monetary transactions of businesses concerned with day-to-day activities.Finance is a science that manages funds of a business
ObjectiveAccounting has objective to provide information about the financial health of and position of affairs of a businessFinance has an objective of wealth maximization; profit-making and studying the capital market
ApproachIts approach is backward-looking which means accountants record transactions and events that have already happened in the past.Its approach is forward-looking which means finance managers look at a plan of action and targets to achieve.
ResponsibilityThe Accountant has responsibility for determining tax liabilities and ensuring statutory complianceFinance managers have the responsibility of forming strategies to create value for an investor
InterdependenceIt supports the finance team to provide accurate and relevant data of the companyIt sets the correct pace for growth and determines that targets achieved
DivisionAccounting is part of financeFinance is not part of accounting.

What is Accounting?

In accounting, all the monetary transactions are systematically processed, recorded, and summarized that have been done on a day-to-day basis of a business further that reveal about the profit and loss during a certain period.

It looks at all the transaction that has been done in the past that’s why accounting is called a backward-looking process. Here accountants keep running the executive side of operations. They regularly look in every single flow of transaction is recorded and reflected in bank accounts. They will ensure statutory compliance and determination of tax liabilities.

Accounting is a disciplined activity that requires detail and procedure orientation. Here rule-based and strong quantitative and computation skills are needed. An accountant must have proficiency in auditing, taxation, management accounting, business laws (like GAAPS, IFRS, etc.), and cost accounting. The primary objective of accounting is an effective and accurate recording of the transaction.

Accountants deal with items of revenue and expenses of all day which are used to identify abnormal happening to restore profitability. The team of accounting always supports finance by providing accurate and relevant stats of the company.

What is Finance?

Finance is a border term that looks upon the acquisition and allocation of funds effectively. It refers to money management and investment for the individual as well as for the organization. Therefore, finance managers look that the funds are distributed among various class assets for getting the maximum possible return and achieving the target without risk in the assigned period.

Generally, Finance managers are looking for plans of action and targets to be achieved that’s why finance is called a forward-looking process. In finance, finance managers are engaged in predicting the future results that enable business as well established.

Finance is a research-oriented field where a good knowledge of the current market and industry situation must be needed. A finance manager must have proficiency in corporate finance, capitals markets, derivatives, portfolio management, and financial modeling.

The primary objective of finance is the maximization of shareholder value with which any business operates. Their expertise sources funds in the company in a cost-effective manner and their strategic decision have a direct effect on the fate of the company. Financial managers predict the future and precautionary measures for the survival of the company.

Main Difference Between Accounting and Finance

  1. Accounting is recording and reporting all the transactions that happen in the past of the company whereas finance is the science of management of funds in the best manner such that it gives profit to the company.
  2. Accounting looks at past transactions of business whereas finance looks upon future transactions of a business.
  3. Accounting help in understanding the financial position of the company whereas finance helps to predict the future performance of any company.
  4. Accounting activity is driven by specific rules like what, when, how, etc. whereas financial activity is driven by analysis that needed the expertise and capability of financial managers.
  5. Accounting is used in public and private accounting firms, corporations whereas finance are used in banks, corporations, and consultancy.
  6. Accounting has the responsibility of tax liabilities and statutory compliance whereas finance has the responsibility of forming strategies for creating value in firms.

Conclusion

Accounting and finance are interdependence in nature for a driving profit of the corporation. Both give efforts in a good coordination manner and ensure the growth of the company.

On one hand accounting team support finance by giving required and accurate data of transaction of the company in the past whereas financial manager applies their expertise and form strategies for creating value in a company.

Accounts and finance are involved in such a way that every business cannot run without them. There are lots of opportunities for carrier in accounting and finance

References

  1. https://www.sciencedirect.com/science/article/pii/0148296395000844
  2. https://onlinelibrary.wiley.com/doi/abs/10.1002/1099-1174(200006)9:2%3C119::AID-ISAF182%3E3.0.CO;2-Y