Accounting vs. Finance

Main Difference

The main difference between Accounting and Finance is that the Accounting is a measurement, processing and communication of financial information about economic entities and Finance is a academic discipline studying businesses and investments

• Accounting

  Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the “language of business”, measures the results of an organization’s economic activities and conveys this information to a variety of users, including investors, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms “accounting” and “financial reporting” are often used as synonyms.

  Accounting can be divided into several fields including financial accounting, management accounting, external auditing, tax accounting and cost accounting. Accounting information systems are designed to support accounting functions and related activities. Financial accounting focuses on the reporting of an organization’s financial information, including the preparation of financial statements, to external users of the information, such as investors, regulators and suppliers; and management accounting focuses on the measurement, analysis and reporting of information for internal use by management. The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system.

  Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are usually audited by accounting firms, and are prepared in accordance with generally accepted accounting principles (GAAP). GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board (FASB) in the United States and the Financial Reporting Council in the United Kingdom. As of 2012, “all major economies” have plans to converge towards or adopt the International Financial Reporting Standards (IFRS).

• Finance

  Finance is the study of money and how it is used. Specifically, it deals with the questions of how an individual, company or government acquires the money needed – called capital in the company context – and how they then spend or invest that money.

  Finance is, correspondingly, often split into three areas: personal finance, corporate finance and public finance.At the same time, finance is about the overall “system”

  – i.e. the financial markets that allow the flow of money, via investments and other financial instruments, between and within these areas;

  this “flow” is facilitated by the financial services sector.

  A major focus within finance is thus investment management — called money management for individuals, and asset management for institutions — and finance then includes the associated activities of securities trading, investment banking, financial engineering, and risk management.

  More abstractly, finance is concerned with the investment and deployment of assets and liabilities over “space and time”:

  i.e. it is about performing valuation and asset allocation today,

  based on risk and uncertainty of future outcomes,

  incorporating the time value of money (determining the present value of these future values, “discounting”, requires a risk-appropriate discount rate).

  As an academic field, finance theory is studied and developed within the disciplines of management, (financial) economics, accountancy and applied mathematics.

  Correspondingly, given its wide application, there are several related professional qualifications, that can lead to the field.

  As the debate to whether finance is an art or a science is still open, there have been recent efforts to organize a list of unsolved problems in finance.