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Finance:
Finance covers a huge array of subjects, but the three main terms when comparing to accounting
would be: (1) the study of money and capital markets which deals with many of the topics
covered in macro economics (2) management and control of assets and investments, which
focuses on the decisions of individual and financial and other institutions as they choose
securities for their investments portfolios, and (3) managerial finance (business finance) which
involves the actual management of the firm, as well as profiling and managing project risks.
Managerial finance is probably the most important to all types of businesses, whether they are
public or private, deal with financial services or are manufacturers. Managerial finance also
involves analyzing the performance of the firm in order to forecast its future performance. It
involves making decisions regarding working capital issues such as level of inventory, cash
holding, credit levels, etc.
What is the connection between accounting and finance? Accounting is an essential
part of finance. It is a sub-function of finance. Accounting produces information
about the operations of a business. The end-product of accounting is composed of
financial declarations such as balance sheets, income declarations which include
the profit and loss accounts, and the declaration of changes in financial position
which includes sources and uses of funds declaration. The data kept in these
declarations and reports aids financial directors in analyzing the previous
performance and future inclinations of the company and in satisfying certain legal
duties and responsibilities, such as payment of taxes and many more. Therefore,
accounting and finance are practically closely connected.
One difference is associated with the treatment of funds and the other is associated
with decision making. In accounting, the system of determination of funds; that is,
income and expenditures, is based on the accrual system. Revenue is
acknowledged at the point of sale and not when it was collected. Expenses are
acknowledged when they are incurred than when they are paid. However, in
finance, the system of determination of funds is based on cash flows. The revenues
are acknowledged during the actual receipt in cash as in cash flow and the
expenses are acknowledged when the actual payment is made as in cash outflow.