Finance and Accounting

We are often asked what is the differences between finance and accounting. Finance and accounting are terms often used interchangeably. While both are related to the administration and management of an organization’s assets, each contains major differences in scope and focus. Finance and accounting operate on different levels of the asset management spectrum.

Here’s a summary of the differences between finance and accounting.

Finance

Finance is inherently forward-looking; all value comes from the future. Finance refers to the ways in which a person or organization generates and uses capital—in other words, how a given party manages their money. This often encompasses activities such as investing, borrowing, lending, budgeting, and forecasting.

Accounting

Accounting provides a snapshot of an organization’s financial situation using past and present transactional data. In accounting, insight into an organization’s financial situation is gained through the “accounting equation,” which is: Assets = Liabilities + Owners' Equity.

Accounting refers to the process of reporting and communicating financial information. Rather than making strategic financial decisions, accounting captures an accurate snapshot of the financial position at a specific point in time—a practice that results in the information that finance activities are generally based upon.

The typical activities involved in accounting include recording transactions, collecting financial information, compiling reports, and analyzing and summarizing performance. The results often include thorough financial statements—including income statements, balance sheets, and cash flow statements—that are used to understand an organization’s position at a given time.

Source: Harvard Business School