Finance vs Accounting

There's a lot of confusion among people as to what are the differences and similarities in Finance and Accounting, which seem to be one and the same to the majority. Let's get into it and clear this out.

FINANCE:


Going by definition first, Finance includes any activity that involves money or capital management. Any economic activity that mainly comprises of management of funds or its associate, fall under the domain of Finance. Every activity in the domain of Finance basically consists of one of the following factor:

  1. Financing: This consists of the decision of the individual or organization as to from where to acquire funds or capital in the business so that there is least floating cost involved, and the EBT(Earning before Tax) is maximized. This is a very crucial decision for the organization as it can have a vast impact on the entity. It becomes very essential for the organization to have a good leverage between own fund and borrowed fund so that return to capital is the best. Thus there are a lot of competencies in the market for Financing decision making jobs, with competitive pay scales.

  2. Investing: This comprises of the decision of where to invest the funds which have been previously acquired either from own or borrowed fund. This is the most significant decision because if the funds are not invested in an efficient manner then there are high chances of losses, leading to degraded capital. Thus even if there's a good leverage between owner's fund and borrowers fund, but it is not invested efficiently, then the business will not sustain. Due to its high significance, these jobs are the highest paid jobs in Finance domain.

  3. Dividend: Dividend decisions are the ones related to the distribution of funds. For example, in the case of a company, it is a matter of concern how much dividend is to be declared so that the shareholders are also satisfied and the company's profitability also sustains, along with its share price. Thus this decision also becomes important for the organization in order to sustain its going concern.


Almost every competency in Finance domain revolves around these three decisions- Financing, Investing and Dividend, which are the basic principles of management of money. Thus every activity which is associated with management of money is Finance.


ACCOUNTING:


By definition, Accounting is the process of recording of financial transactions pertaining to a business and its communication through financial statements. The personnel present in Accounting profile need to be accurate and reliable in order to present a true and fair view of the business entity. Accounting is a backward-looking activity i.e. the work done here is related to the past like the transactions which have occurred in the previous financial year is needed to be recorded. There are various types of accounting where high grade career options are present, some of them being- Financial Accounting, Cost Accounting, Management Accounting, Forensic Accounting and Tax Accounting. The various functions involved in Accounting domain are - Financial Reporting, Bookkeeping and Auditing.


Thus it is evident that Accounting domain mainly comprises of recording of transactions and preparations of financial statements, while Finance domain includes the detailed analysis of these financial statements and taking meaningful decisions from the observations.

uptoNORTH Premium