Importance of Accounting and Finance

in Business
POSTED ON WEDNESDAY, JUNE 10, 2015  BY JENNILYN YASE
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When we talk about business, the first thing that comes into our mind is money.
Generally, that is the means and ends of for-profit entities- to keep earning money. To
be able to do this, having the knowledge about accountability and management of
money becomes a necessity to every businessman.

Businessmen must know how money revolves around his business, how to generate
money, where money came up from, how money is spent, and how to make use of the
money. Basically, every businessman must know the past, present, and future of his
business, in financial terms.
Many businessmen claim that they understand accounting software and finance enough
for them to start out their business ventures. Yes, accounting and finance are the basics
of business, to which an entrepreneur should be conversant of. And being the founding
tools of business, it is very important that every businessperson should be well aware of
the functions and uses of accounting and finance. Thus, let us solidify your knowledge
about Accounting and Finance.

Contents [hide]
 1 Definition of Accounting and Finance
o 1.1 Profitable Investment Opportunities
o 1.2 Optimal Mix of Resources
o 1.3 Sources:
Definition of Accounting and Finance
A common misnomer is the idea that accounting and finance are the same thing. But in
reality, accounting and finance are two separate process, in business. They are two
different aspects of business that harmoniously work to keep the business going. Yes,
they are very much related, in a symbiotic relationship, but they are not the same.

Accounting, as defined by the American Institute of Certified Public Accountants

(AICPA), is “the art of recording, classifying and summarizing in a significant manner
and in terms of money, transactions and events which are in part at least, of a financial
character, and interpreting the results thereof”.

It is the whole process which will answer the what, where and how of the business in
terms of money.
The underlying concept about accounting is that it is the reporting about the status of
the business using the financial language which is money. Accounting begins with the
process of identifying which events and transactions affect the financial standing of the
business.

Normally, a business undergoes a lot of dealings and happenings every day, but not all
of these occurrences qualify to be recognized as an accounting event. Only accounting
events are recorded and included in the accounting process.

For example, Company ABC is a dealer of beauty products; it purchases items for
resale from a supplier, stores these items into their warehouse, and ultimately place
them into their stores for selling to customers. The process where Company ABC fill
their warehouse with beauty products bought from the supplier qualifies as an
accounting event because the company disbursed cash to the supplier in
exchange for the products.Thus, it affected the company financially and must be
recorded.
On the other hand, the act where the company moved some of the items from their
warehouse to their store does not qualify to be an accounting event because the
movement did not affect the company financially. The movement of the merchandise did
not change the fact that the items are still for resale and were not converted to cash or
any form but remained as part of the inventory. The basic rule, in classifying whether
the transaction should be recorded or not, rely mainly on recognizing if the event
affects the business financially or not.

During recording, events are further classified as to which part of the accounting
information it belongs, the classifications are listed below: