Accounting vs Finance is a common search query. This article defines the two functions and explains the differences between them, and how both functions are interconnected and dependent on each other to better an organisation’s future.
What is Finance?
Finance revolves around the acquisition of funds, also known as capital. Finance is an umbrella term comprising the management, creation, analysis of funds, and how they are directed.
In Finance fund management includes investing, budgeting, saving, and forecasting the different sources of income for a business. It is through finance that businesses generate capital to pay operational and staffing costs.
What is Accounting?
Accounting consists of recording any and all financial transactions pertaining to a business. It is how a business records, analyzes and understands its financial information. Accounting processes and analyses raw – transactional – data, and converts them into quantitative information that Finance then utilises to make significant decisions regarding the business.
There are 3 types of accounting required to efficiently track and process raw data;
- Cost Accounting: Analysis an organisation’s cost structure.
- Managerial Accounting: Generationg information used for management decisions.
- Financial Accounting: Reports on the financial status of an organisation to external stakeholders or entities.
Accounting vs Finance #1: Financial Statements
Accounting is responsible for collecting and preparing financial statements, whereas finance is responsible for the examination and analysis of these statements.
Accounting vs Finance #2: Data & Insights
Accounting focuses on accurately producing numbers that can be relied on by the finance department, whose goal is to analyse and produce useful insights that are beneficial to the financial health of an organisation.
Accounting vs Finance #3: Financial Positions
The purpose of accounting in a business is to gather information and relay the financial position of the company to finance. Finance’s job is to identify methods that add value to the business.
Accounting vs Finance #4: Statements
Accounting works with historical data and focuses on capturing a snapshot of an organisation at a certain point in time. Finance focuses on the future and the means of implementing an organisation’s vision.
Accounting vs Finance: Summarising the Differences
A variety of different tools are used to produce the necessary information for both departments. Accounting relies heavily on income statements, balance sheets, and cash flow statements. Finance formulates a broader analysis of the data using tools such as risk analysis, capital budgeting, ratio analysis, and working capital management.
There are certain rules that are applied to accounting; they look at what, when and how whereas Finance looks at the what-if. The main distinction between accounting vs finance is that people working in finance center their focus around forecasting and directing all financial transactions for a business, while those in accounting are more centered around the reporting on those specific transactions.