Accounting
Accounting is the systematic procedure of identifying, recording, classifying, summarizing, analyzing, and reporting business transactions. The primary objective is to reveal the profits and losses of a business. It plays a crucial role in managing and maintaining financial records, making informed business decisions, and ensuring compliance with financial regulations. It therefore, safeguards the interests of stakeholders.
1. Identifying:
This is the initial step in accounting, where financial transactions are recognized and recorded. Accountants identify and document each transaction, ensuring they are classified correctly as income, expenses, assets, liabilities, or equity.
2.Recording:
It is a fundamental step in the accounting cycle and involves documenting these events accurately for the purpose of maintaining complete and reliable financial records. Entering financial transactions in a systematicmanner, as and when they occur. And to do so, we use Journal or subsidiarybooks.
3.Classifying:
After the recording of data, the transactions ofsimilar nature or type are grouped together. For this purpose, the firm opensvarious accounts in a ledger which is a secondary book. Thereafter, the postingof transactions in those accounts takes place. Proper classification is essential for accurately representing an entity's financial position and performance.
4.Summarizing:
It involves the preparation and presentation of theclassified data. The classification takes place in a manner that is useful tothe users. In this step, the firm prepares financial statements.
5.Analysing:
Analysis is the systematic classification of dataprovided in the financial statements. It refers to the process of examining financial data, transactions, and reports to gain insights, draw conclusions, and make informed decisions about an organization's financial performance and position. Unless the figures stated in the financial statements are presented ina simplified manner, they won’t mean anything.
6.Reporting:
Reporting refers to the process of preparing and presenting financial information in a structured and organized manner for various stakeholders, including company management, investors, creditors, regulatory authorities, and the public. It serve key purposes like decision making, transparency & Accountability.
Finance:
Finance refers to the ways in which a person or organizationgenerates and uses capital, in other words, how a given party manages theirmoney.
- This often encompasses activities such as investing, borrowing, lending, budgeting, and forecasting.
- The main purpose of finance is to maximize the value of an organization by making informed financial decisions.
- This includes decisions related to investments, financing, and risk management.
- Finance encompasses activities like capital budgeting (evaluating investment projects), financial analysis, risk assessment and management, raising capital, managing working capital, and determining optimal capital structures.
Difference between Accounting & Finance:
In summary, accounting is more focused on recording and presenting financial data accurately, while finance is focused on managing financial resources strategically to maximize value. Both fields are integral to the success of businesses and play complementary roles in decision-making and overall financial management.
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BASIS FOR COMPARISON |
ACCOUNTING |
FINANCE |
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Meaning |
Accounting is a methodical record-keeping of transactions of business. |
Finance is the study of the management of funds in the best possible manner. |
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Part of |
Finance |
Economics |
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Focuses on |
Past |
Future |
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Concerned with |
Ensuring that all the financial transactions are recorded in the financial system with accuracy. |
Understanding financial data of the enterprise keeping in mind the growth and strategy. |
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Thinking Process |
Rules-Based |
Analysis Based |
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Financial Statements |
It is prepared. |
It is analyzed. |
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Drive |
Tax Driven |
Plan Driven |
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Career |
Accounting professionals can become accountants, auditors, tax consultants, etc. |
Finance professionals can become investment bankers, financial analysts, finance consultants, etc. |