Home Accounting & Finance Key Differences Between Accounting & Finance

Key Differences Between Accounting & Finance

What exactly is the primary difference between accounting and finance?

Accounting is a crucial part of finance. It’s actually a sub-function of finance.

Accounting provides data about the business operations of the organization.

The end-product of accounting is made up of financial declarations which include balance sheets, cash flow declarations which feature the profit and loss records, along with the declaration of adjustments in financial position which incorporates sources and uses of funds declaration.

The information held in these declarations and records helps financial directors in understanding and analyzing the previous performance and future inclinations of the organization and in fulfilling specific legal obligations and accountabilities, which include payment of taxes and others.

For that reason, accounting and finance are pretty much strongly associated.

One particular big difference is connected with the treatment of funds and the other is involved with decision making.

In accounting, the method of determination of funds; that is, income and expenditures, is based on the accrual system. Revenue is understood at the point of sale and not when it was collected.

Expenses are identified when they are incurred than when they are paid.

However, in finance, the system of determination of funds is based mostly on cash flows. The revenues are recognized during the actual receipt in cash as in cash flow and the expenditures are identified when the actual payment is made as in cash outflow.

A further difference between accounting and finance is with respect to their purposes.

With accounting, it aims to collect and present financial information. It furnishes constantly improved and easily interpreted previous data, present and future inclinations of the company.

At the same time, financial director’s key responsibility and duty associates to financial strategy, controlling and managing, in addition to decision making. For that reason, in a good sense, finance begins where accounting concludes.

Accounting is the course of action of day-to-day transactions, whereas finance is the generating of financial resources and utilize those resources for business goals and objectives.