Q: What is the difference between Accounting and Finance in Business?
A: Accounting is concerned with the recording of transaction in a systematic and orderly manner. As such, it is concerned with recording the business event in a monetary terms whether the cash is involved or not at the time of recording the business transaction.
Example: Consider a situation where a firm has bought material for N500,000 on 01.01.2007. This amount is to be paid after 30 days from the date of purchase to the supplier on 31.01.2007. Though money is not spent on 01.01.2007, the transaction is recorded in the books of accounts.
Accounting functionalities involve,
1.Recording of transactions (Online transactions, Journal vouchers)
2. Maintaining the prime books (Cash book, Journals and Bank book)
3. Generating financial statements (Income Statement, Statement of Financial Position and Cash Flow
Finance is concerned with raising of funds to meet the various cash flow needs of the organization. Finance functions starts from gathering the cash flow information from the accounting records and also prepare projections of cash flow. Finance activities are concerned with preparing budgets and compare the same with the actual results for finding variances. Here, the sources and application of funds are prepared for both the budgets and actual scenarios.
Finance functionalities involve,
1. Bank co-ordination,
2. Sourcing and Application of funds,
3. Preparing Budgets
Finance activities will encompass through the Accounting and Operations aspects of an organization.
Accounts have to do with the daily records of financial activities of an organization while Finance is the management of funds ranging from the sourcing for funds to the usage of funds and also control of cash outflows
Accounting is mainly for stakeholders in the business i.e. shareholders, suppliers and customers government agencies, deposit banks and other financial institutions .It is prepared mainly for raising funds and for tax purpose. Finance is mainly prepared for management purpose. It is useful tool for management for preparation of budget, cost allocation, cost reduction, etc. It is for managing the funds of the company – Source and Application.
Accounting are managerial level it includes recording, classifying, summarizing the results to the stake holders of the company.
Finance deals with the ad ministerial level it includes various decisions like procurement of funds, invest them in proper manner, and distributing of funds to interested parties.
Thus when compare the scope, the scope of finance is greater than accounts.
Accounting is classifying, ascertaining and summarizing the transactions.
The main difference between accounts and finance is the accounts calculate the cash flow on the basis of accrual basis, means the mercantile basis. Finance consider only when they are received.
Accounts is the only input to finance, therefore is the only pillar on which finance stands.
Accounts is recording day to day transactions and Finance is managing Fund flow. Both are interdependent and has broader meaning. Accounts and Finance are like two wheels of the cart.
Accounting: Accountant’s (sometimes called: Controller) primary function is to develop and provide data measuring the performance of the firm, assessing its financial position, and paying taxes. The accountant is responsible for preparing financial statements such as the income statement, statement of financial position and statement of cash flows. It is normally passive work, in the sense that, the work has a very independent nature to it such as preparing forms and financial statements
Finance: The financial manager places primary emphasis on decision making. It uses the financial statements prepared by accountants to make decisions about the firm’s financial condition and to advise others about possible losses and profits. In some cases, finance is more a type of leadership position. A financial manager has to deal not only with finance, but also with economics, accounting, statistics, math, and management. For example, people working with stocks and bonds have to understand and analyze how the underlying companies are performing. How a given company is going to perform during recession? Should they sell or buy stocks or bonds. How the movement in the interest rate may affect the projects a company has in that country. Finance also deals a lot with risk.