Accounting and Finance: Similarities and Differences
In the Business World, the terms Accounting and Finance come as a perception of similar concepts to most of us. Although there are similarities and provide an astounding career path, they are indeed different from each other.
It is a concept to record, maintain and report a company’s financial activities and transactions. Individuals and corporations seek help from professionals for accounting services. Furthermore, these professionals ensure that the financial transactions get into the general ledger without error. The precision of details of account balances and accurate financial statements are their priority.
The management of money and investments by governments, businesses, and individuals in finance. Therefore, the duty of finance professionals extends to investment banking, forecasting financial projections, wealth management, and financial planning and analysis. Also, the professionals are responsible to ensure optimal and adequate allocation of funds to meet different needs and scenarios. They create value in capital management and assist organizations to get higher benefits than expected risk-adjusted returns.
Importance of accounting and finance to a firm
Accounting and finance together provide information on the organization’s progress. Furthermore, it is the key to the success of any business. They assist in recording and analyzing business activities and transactions. Moreover, a better understanding of incoming and outgoing cash flows facilitates organizations to make better decisions and avoid failure. In addition, without control of accounts and finance, an organization is also losing its control over the business. In short, the potential increase in growth, designing of strategies and implementing them, and sustaining business from an unexpected turn of events requires management of income and expenses.
Purpose in business
Keep Financial Records
Accounting keeps the record of the financial activity of a business. An organization can track daily operations and income/ expenses through a company’s ledger. The accuracy of these records is a must in order to manage the financial future of a business and also acknowledge and understand the cash flow.
Avoid Legal Problems
It is hard to comply with business laws if accurate financial records are missing. A minor error can reflect major implications in tax management for a business. It is essential to understand all the expenses including tax for not having any legal issues moving forward. Poor management of accounts and financial records will bring unnecessary legal trouble that could be avoided.
Make a Budget
Budgeting is the allocation of resources to address the requirements of running, growing, or developing a business. It needs to be done such that there is optimum utilization of resources. This is what differentiates a business and keeps it on track to achieve objectives. Further, it is only possible through an understanding of cash flows, income expenditures, and financial records. While trying to run an organization effectively, the consideration of unexpected events and adjustments is also required. Budget planning at the beginning is not enough and requires continuous monitoring and adjustments with time. Good practice on these events sets up a foundation for the stability and success of the business.
An analysis of the record of assets, liabilities, and financial records from past to present provides insight into business performance. The analysis explores the string of events/decisions made, finds mistakes of the past and present and develops a strategy to overcome the shortcoming of a business. It is an important way of being informed without the need to investigate individual transactions, instead helps to show the bigger picture. This is also beneficial to identify new areas of investments, growths, and opportunities.
Communication with internal stakeholders gets easier with the available information of financial reporting. Team discussion regarding strengths, weaknesses, opportunities, and threats becomes easier. It also provides the basis for quick decision-making for businesses.
The financial information helps develop trust with banks and financial institutions for the loan, and even attract investors for the business. The reports and analysis make it convenient to share accurate financial statements with external stakeholders. And in return, external stakeholders can make decisions regarding their involvement with the business.
An organization can move forward to the quick development of good strategy only with proper accounting and financial management practices. Developing a good strategy is already inevitable as seen from all the steps above. Managing accurate financial records, compliance, budgeting, performance analysis, internal and external communication is already bound to give a path that a business needs to succeed. Review of the details assists in making information-based financial decisions and strategy development which is essential for growth and productivity.
Both Professionals require high attention to detail. The clients for Accounting and Finance both also include individuals, businesses, and governments. But there are differences between the two.
The main employers for accounting professionals are public accounting firms and corporations. Banks and corporations are among the main employers for finance professionals.
Accounting Professionals are responsible for preparing financial statements while finance professionals analyze them.
Accounting Professionals look backward into the transactions whereas, Finance professionals are looking into facts and figures to move forward for the clients.
Point of Focus:
Accounting professionals value their work to be accurate and reliable. But the Finance professionals are looking into insights and analysis going through those accurate and reliable facts and figures.
Accounting Professionals provide the financial position for a business. Furthermore, Finance Professionals facilitate in figuring out the ways in adding value to the organization.
Accounting professionals rely on the rules while Finance professionals’ work is analysis-based. Finally, to conclude, no matter what similarities and differences are present between accounting and finance, both are equally important for business growth, productivity, development, and sustainability.