Accounting vs Finance: Difference and Comparison

Accounting and Finance are two different disciplines but commonly confused by people because both of them deal with business money and assets.

Key Takeaways

1. Accounting focuses on tracking, reporting, and analyzing financial transactions to provide accurate financial information for decision-making.
2. Finance involves managing money, investments, and resources, including raising capital, budgeting, and evaluating investment opportunities.
3. While accounting ensures the accuracy and reliability of financial information, finance applies that information to make strategic decisions and manage resources effectively.

Accounting vs Finance

Finance is a broader term compared to accounting, as it is the science of management of funds of a business, while accounting is the recording and reporting money transactions of a business. Accounting tools are income statement, Balance Sheet, etc, whereas Finance tools are Capital Budgeting, etc.

Accounting involves the recording, creation, summation, management, and reporting of day-to-day financial transactions of the business, which ultimately leads to the preparation of business financial statements. Accountants or bookkeepers are responsible for managing the organization’s accounting activities and need to ensure that all monetary transactions are correctly captured into the ledger book and balance of accounts are correct, thus financial statements are reliable and accurate.

Finance refers to the science of logical planning and distributing the business assets whereas Accounting is an art of classifying, recording, and reporting the financial figures or transactions of the business.

Finance has a wider scope where management of money and investments are done for public/private corporations, governments, or individuals. Finance supports the integral and crucial decision-making process related to cash management, financial analysis & planning, investments, divestments, working capital management, etc.

Finance professionals are responsible to ensure that adequate capital (funds) is optimally allocated as per the need of a particular segment or situation.

Accounting is used to manage books of accounts and finance is used to manage the funds of the business.

Comparison Table

Parameter of Comparison	Accounting	Finance
Definition	Accounting involves the management of day-to-day financial transactions and the flow of money and then preparing the financial statements.	Finance is a wider and broader term that involves the effective management of business assets and liabilities, and further planning for positive future growth.
Activity Type	It is a kind of post-mortem activity that records what has already happened.	It is a pre-term activity where the comprehensive study is done to realize the funds or assets requirements of an organization or business.
Aim	The main aim of Accounting is to collect, classify, and present the current financial information about the business that can be used internally as well as externally.	The main aim of Finance is to manage, control, strategize, and make decisions about business finances. It involves the view-point of futuristic benefits.
Scope	Current: The scope of work involves the formulation of the financial statements of the current year.	Future: The scope of work involves assessing financial statements or analyzing and planning for future financial transactions.
Attention to Detail	High	High
Focus	On Reliability & Accuracy.	On Analysis & formulating Insights.
Purpose	Communicating the health of the business financial position i.e. whether incurring profits or loss.	Finding the ways & means on how more value in terms of financial position can be added.
Driven By	Accounting activity is carried by the specific rules that are defined for them i.e. what, when, and how.	Finance is driven by Analysis that is based on the expertise and capabilities of the person or agency in charge.
Used In	Public/private accounting firms, corporations.	Banks, Consultancy, Corporations,
Fund Realization	The determination of funds in Accounting is based on cash flow and receipts & payments that are realized for revenue and returns.	Determination of funds in Finance is based on the accrual system, i.e. revenue is recognized at the time when the sale is done not when it is collected. Expenses are also realized when they are incurred.

What is Accounting?

In Accounting, anything that has financial character associated with it in monetary terms is recorded, classified, summarized and then interpreted in a significant manner.

The financial statements prepared by the respective professional are used to understand the financial health of the business i.e. whether a business is making profits or losses. The human competence and aptitude define the reliability and accuracy of financial statements.

This seeks to record and collect all financial transactions of the organization to be used internally and externally. Financial Reports may be read by investors, lenders, or creditors and these reports must portrait fair and accurate information.

The various types of accounting are Financial, Public, Government, Management, and Internal Auditing.

What is Finance?

Finance is a wider and broad term that closely describes the two activities i.e. to assess how the finances or money will be managed and how required funds will be acquired. Money, Credit, Banking, Capital markets, Leverage, Investments, Dis-investments are few concepts that are included in finance.

The finance holds its roots in Microeconomics and Macroeconomics means assessing every aspect of the finances from “how-to”, “what to”, “where to” and “when to” manage.

Finance is categorized as:

1. Personal Finance – How a family or individual manages their money or assets like setting financial goals for marriage, education, savings for retirement, assessing taxes, and identifying all short-term or long-term needs.
2. Public Finance – It is related to the government policies that influence spending, taxes, debt issuance, and budgeting. Its main objective is to know how the government will pay for public services.
3. Corporate Finance – It takes into account the financial workings of individual corporates or corporations i.e. how they started, grown, and sustained over a period of time.

Main Differences Between Accounting and Finance

No doubt Accounting and Finance share a few fundamental characteristics as both fields are concerned with proper money management and both need the advanced level of education to perform the required task with quantitative & analytical skills but still, both are different.

1. Accounting works on what is happening whereas Finance sees what we can do for a better future. Accounting has a set of rules and guidelines whereas Finance is purely based on the analytical skills, aptitude, acumen, and expertise of the person.
2. Accounting focuses more on the daily movement of money within the purview of organizations i.e. what comes in and what goes out. Whereas in Finance focus is on the broad management of organizations’ assets and money, and to plan how financial growth can be sustained or made in positive terms.
3. In Accounting, the emphasis is more on reporting the financial events that happened in the past and to ensure compliance with accounting norms. But in Finance, the emphasis is more on identifying ways to increase funds or money and prevent any losses.
4. Accounting professionals need to be fastidious with concrete attention to details, whereas in Finance professional needs to be long-term visionary and thinkers.
5. Subjects like accounting theory, accounting practices, business and tax law, and accounting ethics make the base of study for Accounting. And in Finance, financial engineering, microeconomics, and macroeconomics subjects make the study base.

References

1. https://onlinelibrary.wiley.com/doi/pdf/10.1002/1099-1174(200006)9:2%3C119::AID-ISAF182%3E3.0.CO;2-Y