Accounting vs Finance
Accounting and finance both are parts of the broader subject of economics. Accounting is in itself a part of finance. Accounting has been in practice since centuries, only the methods have kept changing. It refers to the practice of recording all financial transactions in such a manner which is scientific and enables any reader to know all about the company and its financial health with the help of the records created through accounting. Finance, as told earlier is much bigger and involves study of capital markets and money, management of funds, and management of the firm.
It is the study of methods and ways in which different organizations raise funds and then use them for a profit keeping in mind all the risk factors. It involves using scientific principles and techniques to manage all the money matters, particularly income and expenditure. Investments of the organizations and management of the risk factors also come within the purview of finance. Today, finance has become a specialized subject and has branched out into several categories like personal finance, corporate finance and public finance. The study of capital market is an essential part of finance. All investments are a part of finance. Then there is managerial finance which requires analysis of the past performance and using it to forecast future performance.
Accounting is an integral part of finance. It would be correct to call it a subset of finance. Accounting is actually a precise method to record, analyze and disclose all financial transactions of a business. The end product or the disclosure part in accounting refers to products such as P&L accounts, Balance Sheets, financial statements and declaration of financial status of the company which specifies the funds available with the company at the start and in the end including the usage of funds. All the data that is presented through accounting helps in analysis of the previous and future performances of the company.
Talking about similarities, accounting being a part of finance uses all the principles of finance. Accounting is a tool that produces information that is of crucial importance for managing finances of any company. All the data that is required to take financial decisions are the end products of accounting. In this sense, finance and accounting are closely related. But the similarities end here as there are many stark differences between the two.
Accounting is basically bookkeeping meant to record all transactions and to produce statements that are meaningful and help in managerial finance. Finance is much bigger than accounting and it oversees all the financial operations in any business including the income and the expenditure. It also looks after investments keeping in mind the risk factors.
The basic difference between the two is that finance begins where accounting ends. Finance makes use of the end products of accounting to come to decisions. Accounting is a mare compilation of facts and figures whereas finance is based upon entrepreneurial abilities where finance manger has to take risks depending upon the financial health of the company.
In conclusion, it can be said that both accounting and finance are important parts of economics with finance not able to move a single step without accounting. Finance makes heavy use of the end products of accounting as they form the basis of all the decisions taken in finance. In this sense, finance is heavily dependent upon accounting as it makes use of the data generated through accounting to analyze the past and make future predictions. Both accounting and finance are essential though, and any business cannot make do without either of the two.