Houston Finance

Oct 17 2017

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Difference between Accounting and Finance

Key difference: Accounting is the process of creating and managing financial statements which record the day to day transactions of the business. Finance has a broader scope and is responsible for initiating transactions to aid in cash, investment and other working capital management.

Accounting and finance are both forms of managing the money of the business, but they are used for two very different purposes. One of the ways to distinguish between the two is to realize that accounting is part of finance, and that finance has a much broader scope than accounting.

Accounting is the practice of preparing accounting records, including measuring, preparation, analyzing, and the interpretation of financial statements. These records are used to develop and provide data measuring the performance of the firm, assessing its financial position, and paying taxes. Finance, on the other hand, is the efficient and productive management of assets and liabilities based on existing information.

Finance is the study of money and capital markets which deals with many of the topics covered in macro economics. It is the management and control of assets and investments, which focuses on the decisions of individual, financial and other institutions as they choose securities for their investments portfolios. Also, managerial finance involves the actual management of the firm, as well as profiling and managing project risks.

Another way to look at it is that, accounting analyzes the past expenses and performance of the business. This information is then used by the finance department to make decisions about the future.

Preparation of accounting records

Efficient and productive management of assets and liabilities based on existing information

Measuring, preparation, analyzing, and interpretation of financial statements. To collect and present financial information.

Decision making regarding working capital issues such as level of inventory, cash holding, credit levels, financial strategy, managing and controlling cash flow.

To see how the company is performing, to monitor day to day accounting operations, and for taxing.

To forecast the future performance of the business.

Balance sheets, profit and loss ledgers, positional declarations, and cash flow statements.

Performance reports, ratio analysis, risk analysis, estimating break evens, returns on investment, etc.

Determination of funds

Revenue is acknowledged at the point of sale and not when it was collected. Expenses are acknowledged when they are incurred than when they are paid.

Revenues are acknowledged during the actual receipt in cash as in cash flow and the expenses are acknowledged when the actual payment is made as in cash outflow.

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