Accounting vs.

Finance: The Basics

Definition of Accounting is the complete process of identifying, recording, classifying, summarizing,

reporting, interpreting and analyzing the financial information. It is an art of systematically recording the
transactions, for keeping a proper track of financial statements on the basis of Accounting Standard (AS).

With the help of the financial statement of an entity, internal audit, and tax audit is conducted at the end of
the financial year. This financial statement is readable to the users after the audit, who can view the
performance and position of the business for a particular period. The users of the financial statement include
all the stakeholders such as creditors, debtors, lenders, suppliers, investors, shareholders, employees, etc.

Definition of Finance is the science of the acquisition and allocation (i.e. Spending or investment) of funds
effectively. It is a broader term, which studies about money and capital market along with the arrangement
and management of funds by business.

The major aspect of finance is the “time value of money” i.e. the value of money changes over time. It helps
in analyzing any budget for choosing an optimum investment plan, which lowers the risk factor for a firm.

Key Differences between Accounting and Finance Accounting is a methodical record keeping of
transactions of business while Finance is the study of the management of funds in the best possible manner.
Accounting is a subset of Finance The accounting information is helpful for the users of the financial
statement for understanding the financial position of the business while Finance is useful in forecasting the
performance of the entity in the future. Accounting uses Income Statement, Balance Sheet, Cash Flow
Statement, etc. as its tools. On the other hand, Leverage, Capital Budgeting, Ratio Analysis, Risk Analysis,
Working Capital Management, etc. are financial tools.

There are four branches of accounting while there are only three branches of finance. Interdependency
Accounting and Finance both are a part of economics. Both these entities are dependent on each other, such
as accounting is a part of finance and finance is dependent on accounting. The financial analysis is done
with the help of the financial statement, submitted by the auditor. In other words, they are very closely
interconnected, or we can say, the end of accounting is the beginning of finance.

Conclusion: In every sphere of business, Accounting and Finance are involved in such a way that business
cannot survive for a long time without them. If you want to know its importance, just imagine what would
be the condition of a company if both of them were not there. There will be no records of transactions, no
profits could be determined, there won’t exist any basis on which the inventories and investments would be
valued, management of capital is unimaginable, risk factor will increase, no comparison could be made,
budgeting and analysis of cash would not be possible, etc. If any person if anyone wants to make a career in
accounting and finance, first of all, the choice of career is great because of diverse opportunity in banking,
advertisement, insurance, marketing, management and so on. And to do so, he has to take accounting and
finance degrees.

Making the Choice: Finance vs. Accounting: The difference between finance and accounting may just be
a matter of idle curiosity for some of us, but if you’re choosing a college major or a career, it’s an important
distinction. Choose accounting and if you work for a big company you’ll likely report to the company’s
Chief Financial Officer. You could have a job title like Controller, Tax Manager, Fund Accountant,
Valuation Analyst or Financial Reporting Accountant. Alternatively, you could become a Tax Accountant, a
Bookkeeper, Treasurer or Auditor, for yourself, a business, a non-profit or the government.

As an accounting professional you’ll be tracking and reporting flows of money and ensuring compliance
with best practices. You’ll rely on Generally Accepted Accounting Principles (GAAP) and you’ll likely
come to be familiar with the tax code, too.  If you choose finance you have a different range of options. You
could become a financial analyst, investment banker, financial examiner, personal financial advisor or
money manager. You could work in consulting or corporate finance. Banking and insurance underwriting
are also open to finance majors. And of course entrepreneurship is another route that’s open to finance types.