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what is the difference between accounts and finance.
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Answer Posted / p.prabhakaran
The following is the distinction between Accounts & Finance:
1) Score keeping Vs Value Maximising:
Accounting is concerned with score keeping, whereas finance
is aimed at value maximising. The primary objective of
accounting is to measure the performance of the firm,
assess its financial condition, and determine the base for
tax payment. The principal goal of financial management is
to create shareholder value by investing in positive net
present value projects and minimising the cost of
financing. Of course, financial decision making require
considerable inputs from accounting. An accountant's role
is to provide consistently developed and easily interpreted
data about the firm's past, present, and future operations.
The financial manager uses these data, either in raw form
or after certain adjustments and analyses, as an important
input to the decision making process".
2) Accrual Method vs Cash Flow Method:
The accountant prepares the accounting reports based on the
accrual method which recognises revenues when the sale
occurs (irrespective of whether the cash is realised
immediately or not) and matches expenses to sales
(irrespective of whether cash is paid or not). The focus of
the finance manager, however, is on cash flows. He is
concerned about the magnitude, timing, and risk of cash
flows as these are the fundamental determinants of values.
3) Certainty vs Uncertainty:
Accounting deals primarily with the past. It records what
has happened. Hence it is relatively more objective and
certain. Finance is concerned mainly with the future. It
involves decision making under imprefect information and
uncertainty. Hence it is characterised by a higher degree
of subjectivity.
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