Finance vs Accounting. What's the difference?

Do you know the difference between finance and accounting? You may think they’re the same thing, but they’re actually very different fields. In this blog post, we’ll break down the key differences between finance and accounting and explain why it’s important to understand the distinction. We’ll also give you tips on how both fields can help your business. So read on to learn more!



What is Accounting?


Accounting is the process of recording, classifying, and summarizing financial transactions to provide information that is useful in making business decisions. Accounting data can be used in financial statements, which show a company’s financial position, performance, and cash flow. The accounting process is predominantly governed by a set of rules called GAAP or Generally Accepted Accounting Principles or a set of rules created by the government like the Internal Revenue Code.


What is Finance?


Finance is the process of planning, managing, and deploying a company’s financial resources. Finance is concerned with the allocation of capital, which includes investment decisions, to achieve the goals of the business. The goals of finance are to ensure that a company has the financial resources it needs to survive and grow, and to generate a return on investment for shareholders.


Key Differences Between Finance and Accounting


Now that we’ve explained the basics of each field, let’s take a look at some key differences between finance and accounting:

1. Accounting is predominantly focused on the past, while finance is focused on the future.

2. Accounting data is used to prepare financial statements, which show a company’s financial position, performance, and cash flow. Finance uses this data to make decisions about how to allocate a company’s financial resources.


3. Accounting is governed by rules (GAAP or Generally Accepted Accounting Principles), while finance is driven by returns on investments.


4. Accounting is focused on compliance, while finance is focused on decision-making.


5. Accounting is a process of recording, classifying, and summarizing financial transactions, while finance is the process of planning, managing, and deploying a company’s financial resources.


6. Accounting comes before Finance: The information that is generated from the accounting process is essential for making sound financial decisions.


Why is it Important to Understand?


In order to build an effective finance and accounting department, It’s important to understand the difference between finance and accounting because they are two very different fields. Each field has its own set of goals, rules, processes and understand that both of these roles are most effective when they are working together in harmony. Global Finance Teams specializes in helping companies build effective outsourced accounting and finance teams contact us now for a free consultation.

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