Finance and Accounting
We are often asked what is the differences between finance and accounting. Finance and accounting are terms often used interchangeably. While both are related to the administration and management of an organization鈥檚 assets, each contains major differences in scope and focus. Finance and accounting operate on different levels of the asset management spectrum.
Here鈥檚 a summary of the differences between finance and accounting.
Finance
Finance is inherently forward-looking; all value comes from the future. Finance refers to the ways in which a person or organization generates and uses capital鈥攊n other words, how a given party manages their money. This often encompasses activities such as investing, borrowing, lending, budgeting, and forecasting.
Accounting
Accounting provides a snapshot of an organization鈥檚 financial situation using past and present transactional data. In accounting, insight into an organization鈥檚 financial situation is gained through the 鈥渁ccounting equation,鈥� which is: Assets = Liabilities + Owners' Equity.
Accounting refers to the process of reporting and communicating financial information. Rather than making strategic financial decisions, accounting captures an accurate snapshot of the financial position at a specific point in time鈥攁 practice that results in the information that finance activities are generally based upon.
The typical activities involved in accounting include recording transactions, collecting financial information, compiling reports, and analyzing and summarizing performance. The results often include thorough financial statements鈥攊ncluding income statements, balance sheets, and cash flow statements鈥攖hat are used to understand an organization鈥檚 position at a given time.
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