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Monday 20 June 2011

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.

Another difference between accounting and finance is with respect to their purposes. With accounting, it aims to collect and present financial information. It furnishes constantly improved and easily interpreted previous data,
present and future inclinations of the company. Meanwhile,financial director’s prime duty and responsibilityassociates to financial strategy, managing and controlling,and decision making. Therefore, in a sense, finance starts
where accounting ends.

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