How Finance is Different from Accounting

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How Finance is Different from Accounting

The financial management of a company requires a certified public accountant (“CPA”) and/or a chief financial officer (“CFO”) qualification. A career in Accounting or Finance begins with a college or university degree. Students studying toward an advanced accounting degree must take a certain number of courses in the discipline to apply to a MBA, MS, DBA or PhD program. Those who elect to study toward a graduate degree in finance generally have taken accounting, as well as algebra and statistics or calculus to evidence higher mathematical ability. In addition to accounting and financial analysis techniques, accounting and finance degree programs usually cover legal rules and standards for financial reporting.  24HourAnswers tutors are subject matter experts qualified to assist a student in meeting their individual coursework assignments or credentialing exam objectives. Our team of tutors are professionals in a field of practice, offering students the knowledge they need to attain their academic goals. 

Here are some insights about how studying toward a degree in Accounting is different from

Finance:

The Difference Between Accounting and Finance

 

                   Accounting                                                    Finance

 

1. Accountancy is the field of financial record keeping summarizing financial transactions within a classificatory system, utilizing book-keeping ledgers.

1. Finance is the forward planning for

future acquisition of assets and corresponding liabilities.

2. The primary objective of accounting is the collection and presentation of financial information for purposes of internal and external reporting.

2. The primary objectives of finance involve the control, management, planning and strategic investment of funds.

3. Accounting is a post-mortem activity for recording past activities.

3. Finance is a pre-mortem activity focused on funds or asset requirements.

4. Tools: Balance sheet, Cash flow statement, P & L or income statement, Ledgers, T-charts.

4. Tools: Ratio analysis, Time-Value-Money (“TVM”) return on investment, Risk management, etc.

5. U.S. GAAP accrual accounting rules recognizes revenue at point-of-sale instead of at time of collection. Expenses are recognized when incurred.

5. Funds are based on investment, cash flows, receipts or payments recognized as revenue.

 

Accounting

Accounting is primarily focused on the fiscal activity and other transaction events of a company or firm. Record creation and maintenance of accounts by an accountant provides an ongoing record of business decision. Practitioners of accounting perform cost accounting, financial accounting, management accounting, tax accounting, and audit. In addition, an accountant is in administrative oversight of budgetary allocation, cash flows, and participates as an expert in strategic planning of an organization’s expenditures and investments.

Accountants use an accounting ledger to track revenues and expenses and to perform internal reporting in preparation of the main financial statements for periodic audit. Categorical codification of accounts within the accounting record enables an accountant to track financial transactions for bookkeeping ledger and reporting systems. The “double-entry” accounting method is the commonly applied bookkeeping system in accounting practice. Risk evaluation for financial planning and external compliance is also part of accounting practice.

Responsible for financial audit and compliance of a company’s books with U.S. Generally Accepted Accounting Principles (“GAAP”), Financial Accounting Standards Board (“FASB”), International Accounting Standards Board (“IASB”) and International Financial Reporting Standards (“IFRS”) rules for financial statement audit, a CPA oversees that ledgers and other accounting records comply with guidelines for internal and external reporting requirements. An accountant may also perform activities as controller, public accounting auditor, tax preparer, or treasurer depending on certification and experience.

Finance

Finance is a professional field dedicated to the analysis, management, and planning of financial strategy, transactions, and records. Financial professionals are accredited fiduciary practice leaders qualified to oversee the financial strategy of an organization, partnership, estate or trust fund, and its portfolio of accounts. A financial professional may serve different roles over the course of their career working as a financial analyst, finance consultant, estate or financial planner, investment banker or loan officer in the corporate financial sector, or involved in public financial management or public investment related positions.

While “the art of the deal” is often ascribed to the expertise of financial advisors and portfolio management professionals, the effects of TVM on funds is the primary focus of these roles. Investment forecast considers both market and accounting information as “data” within financial modeling decisions. Capital debt and equity fundraising to enhance liquidity and risk-adjusted returns is part of a financial professional’s responsibility when working for a business or investment firm.  

In addition to calculus of financial analysis (i.e., ratios) performed by accountants, financial professionals also perform institutional risk analysis, market analysis, and assist in the development of fintech innovation. Financial professionals are knowledgeable about Basel I-IV rules for institutional stress-testing and syndicated lending, as well as merger and acquisition agreements.

The Path Between

Financial statement analysis of a company is an activity performed by CPA and CFO professionals. The result of financial statement analysis is the record of a company’s solvency status for the purpose of internal control and external reporting. Information taken from the three main statements (i.e., balance sheet, consolidated income statement, and statement of cash flows) is used in ratio analysis of a firm’s performance for the valuation and reporting of its financial position. It is otherwise referred to as “capital structure analysis” of a firm’s weighted-average-cost-of-capita (“WACC”) and other financial calculus is key for marketing of a firm for investment.

 

An important planning and monitoring tool used to evaluate past, current, and forecasted earnings, financial statement analysis discloses a company’s financial position for review by investors and other stakeholders, including periodic value, return on assets and equity, inventory turnover, and profit margins across business segments. Information generated from managerial accounting and financial analysis records is also of value for econometric modeling and analysis by economists working on operationalized business decisions, or publication of “scientific” research findings related to finance economics or other topic within the general economy.

 

Bibliography

“Differences between accounting, finance, and economics.” PocketSense.

“Finance vs. Accounting.” Corporate Finance Institute (CFI) nd. 

Josephson, Amelia. “The Difference Between Accounting and Finance.” SmartAsset 4 Nov 2020. 

Surbhi, S. “Difference Between Accounting and Finance.” Key Differences July 26, 2018. 

Walker, Samantha. “Difference Between Finance and Accounting.” Difference. 27 Jun 2019. 

“What is the Difference Between Finance and Accounting?” Accounting Capital

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