Many people mistakenly consider the term finance and the term accounting to be interchangeable, but the truth of the matter is that there are many fine lines that lie between them. Though both of these terms may have to do with money, finance and accounting really shouldn’t be considered to be the same thing. If you want to understand the difference between finance and accounting, then you’re going to have to take note of the following things.
The best way to begin differentiating between accounting and finance is to understand their core definitions. In the simplest sense, the way that a business’s assets are distributed can be defined as a matter of finance. Through proper distribution, a business can ensure that all of its endeavors have the right amount of financial backing to remain adequately operational throughout the fiscal year.
The process of putting together a well-advised financial distribution plan can be impactful enough to determine whether a business is able to survive or perish in its earliest years, which makes it equally important to the manner in which financial transactions are reported; this is where the concept of accounting comes in.
Distribution Versus Recording
Whereas finance is primarily concerned with the matter of distribution, accounting would be more accurately described to be the concept of recording. As every area in which assets are being distributed needs to be accurately taken account of in the financial reports, so do all of the small and large transactions. Through accurate accounting practices, a business can always ensure that it doesn’t lose track of any of the important transactions that ultimately play into its revenue and losses.
The concepts of accounting and finance are distinct enough to be organized into different departments. Within the financial department, all investments needs to be properly coordinated in order to serve the best interest of the businesses value.
When investors need to exit the business, the finance department plays a strong part in developing the strategies with which the exit can be facilitated. It is through the work of the finance department that all of the financial objectives of the business can be kept current with and worked toward at all times. Within the finance department are subcategories of financial management, purchasing, budgeting, analysis and other areas.
The accounting department, while comparable to the financial department, is more specifically focused on handling matters such as cash flow, earnings reports, debt management, collections and taxes. It is through a competent accounting department that the business can keep within compliance of the Generally Accepted Accounting Principles.
Because the processes of accounting and finance are equally important, it is easy to see how so many would choose to use them either interchangeably or as a collective term. The similarities between finance and accounting can best be described as an overlap in overall business asset administration. Though both of these processes do have a very strong relationship with the assets of which a business must take account, they are certainly not one and the same.