BusinessEducation

Difference Between Finance and Accounting

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Main Difference

Both finance and accounting have some similarities as both revolve around the management of assets. However there are many factors that differentiate between these two terms. The main difference between finance and accounting is that finance is the art of allocation of assets and liabilities, it totally deals with money management while accounting is the art of providing financial information about activities of an entity either finance related or cost related.

Finance

Finance is the art of dealing with the allocation of assets and liabilities and management of large amount of money. Time value of money is the important factor in finance which states that the purchasing power of one unit of currency can change with the passage of time. Finance can be sub-divide into different categories such as public finance, corporate finance, and personal finance. Personal finance deals with the financial position, adequate protection, tax planning, investment and accumulation goals, retirement planning and estate planning. Corporate finance deals with the means of funding and the capital structure. Public finance deals with the financial matters of state and provinces. In short, finance as a whole deals with Variance analysis, ratio analysis, returns on investment, returns on equity, return on capital employed, risk analysis, and performance reports.

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Accounting

Accounting refers to the way of measuring, processing, summarizing and communication of financial information of an entity. Accounting is called the “language of business”. Accounting measures the performances of an organizations and comprise it in such a way that is useful for investors, creditors, management, and regulators. Practitioners of accounting are known as accountant. Accounting can be sub-divided into various categories such as: financial accounting, management accounting, cost accounting, tax accounting, and auditing. Each category of accounting has a specific purpose. Financial accounting deals with preparation of financial statements for external users of information. Management accounting deals with preparation of information and data for internal use, for management. Recoding of financial transaction or bookkeeping system is a most common system of double-entry bookkeeping system in accounting.

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Key Differences

  1. Finance deals with the management of assets especially money. That’s why employees working in finance department are responsible for the planning and distribution of business assets. Accounting deals with the presentation of financial information of an organization according to general acceptable accounting principles.
  2. Finance deals with decision making and distribution of assets while accounting deals with the economic activities of an organization.
  3. The purpose of accounting is to look after the performance of organization while finance forecast the future performance of the business.
  4. Statement of comprehensive income, statement of financial position, statement of cash flow, statement of changes in owner equity, etc. are various tools of accounting. Variance analysis, ratio analysis, returns on investment, returns on equity, return on capital employed, risk analysis, performance reports, etc. are various tools of finance.
  5. Finance job titles are: financial analysts, loan officers, computer system analyst, accountants and financial managers. Accounting job titles are: accountants, financial analysts, tax consultants/advisors, financial managers, treasurers & controllers, and auditors.
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