The Difference between Accounting and Finance for Laymen

'Accounting' and 'finance' are common terms that could be easily misunderstood. It is often easier to assume that every aspect of accounting deals with finance, and that finance is all about money.

But accounting and finance are absolutely different. In practice, the two terms are often related, linked at some point, and yet different. Accounting and finance are better described as a coin with two sides.

What exactly is accounting

Accounting involves the systematic or orderly recording, assessment, management and reporting of financial records.  As such, accountants are more concerned about business transactions and financial operations that often involve audits, taxes, budgets, debts etc.

Accounting Functions

The key objective of any accounting function is continual financial record keeping. Accounting deals with actual figures, indicating real numbers exactly as they are, such as tax owed, purchase made, accounts payable, receivable, credits, loss, debts etc.

Also, accounting functions often include management of several monetary information such as salaries, capital expenditures, operational expenses, cash flow etc. which are often monitored monthly.

Accounting reflects the financial status of a business during a particular period by indicating profit or loss. Through effective and systematic record keeping it is easier to evaluate the incomes, debts and expenses of businesses in order to ascertain their financial status.   

Understanding Finance

Finance is about the management of money, investment, assets, liabilities, banking and credit. Financial analysts are often concerned with bonds, cash flow, stocks, capital market, forecasting, budgeting, as well as asset and risk management.

Functions of Finance

One of the easiest ways to understand the functions of finance is to consider the responsibilities of financial analysts. Financial analysts focus on finance and renders financial services to public organizations, individual investors and businesses.

Financial analysts deal with projected figures, sometimes during forecast such as stock prices or anticipated return on investment (ROI). Some financial analysts trade and predict the future value of mutual or hedge funds.

Also, some financial analysts who act as portfolio managers supervise their clients’ investment portfolio which may consist of real estate, stocks or bonds. In most cases, financial analysts are more concerned about where and how to invest for maximum return on investment (ROI) or profit.

Why Accounting and Finance are Different

Accounting and finance perform different functions and are required for different reasons. Accounting focuses more on accurate record keeping of transactions, interpreting such records, and presenting them via an easy-to-understand method.    

Finance is more concerned with how money is managed or used to gain profit. As such, finance often deals with investments, forecasting outcomes, and transforming valuable assets into profits.   

However, accounting and finance may complement each other for effective decision making. A financial analyst may request for the financial statement of a business in order to make an informed decision and predict investment outcomes.         

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