What is the difference between finance and accounting?
Are finance and accounting different and separate fields, or are there overlaps?
Let me provide my Finance Storyteller perspective on finance versus accounting, I look forward
to engaging in further discussion with you in the comment section below!
A very generalized view of the difference between finance and accounting is the following:
Finance vs Accounting
finance is managing the company’s financial resources, accounting is recording and reporting
the (financial) transactions of a company.
Finance is viewed as forward looking, planning future transactions.
Accounting is viewed as backward looking, recording past transactions.
This distinction of finance versus accounting sounds good, but might be an oversimplification
versus how things work in the real world.
Finance vs Accounting continuum
So let me propose a more granular and gradual view of finance and accounting, as a continuum.
I would split finance between hardcore finance and operational finance, and I would split
accounting between hardcore accounting and managerial accounting.
Please note that “hardcore finance” and “hardcore accounting” are not textbook
terminology and are not meant as a value judgment, they are merely used for illustration.
Let me know if you have a better term for them!
Hardcore finance would be areas like capital markets and treasury.
Hardcore accounting would be areas like statutory reporting (filings to government agencies),
IFRS or US GAAP reporting (to external stakeholders like shareholders and banks), and auditing.
Operational finance is that group of finance people that helps translate strategy to operational
actions, and helps the business to take action to reach its goals.
The managerial accounting function provides meaningful business reporting for decision
making and operations management.
Let me know what you think of this classification of finance versus accounting into 4 subcategories,
rather than the usual 2.
Conclusion
Does it sound like operational finance and management accounting might have some overlaps?
Yes indeed!
There are some value-added activities that some companies would call operational finance
and others would call managerial accounting: variance analysis, Financial Planning and
Analysis, budgeting, forecasting, and finance support to sales, manufacturing, sourcing, etc.
I hope this short discussion of the difference between finance and accounting was helpful
for you.
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