Updated at 26/11/2022 - 09:29 pm
These are two separate functions, where accounting serves to report past financial transactions, while financial management caters to the requirement of planning for the future.
The key difference between Accounting and financial management is that Accounting is the recording, maintenance and reporting of a company's financial affairs, which gives a clear indication of the company's financial position. In contrast, financial management emphasizes a process by which the effective management of an entity's financial and investment resources is achieved.
What is accounting? #
Accounting is the measurement, processing and recording of an organization's financial transactions. This is to summarize, analyze and record such information for reporting to management, creditors, shareholders, investors and supervisory or tax officials.
The primary objective of Accounting is to report financial and transactional information using Accounting Principles and National and Generally Accepted Accounting Standards.
Accounting can be divided into several subdivisions such as Financial Accounting, Management Accounting, Tax Accounting, and Cost Accounting. However, the two main types are:
- Financial accountant: Reporting financial information to external users such as creditors, suppliers, government agencies, analysts, etc. is financial accounting.
- Management accounting: Reporting financial information to internal users such as management and the Board of Directors is known as management accounting.
Financial Accounting uses standard procedures and accounting principles prescribed by the country while Management Accounting uses the information needs of the organization as a target.
What is financial management? #
Financial management is a process by which it helps to manage the business finances and economic resources of the organization. It is about the process of managing an organization's economic activities effectively to achieve its financial goals. Financial management supports management in making better decisions.
The main objective of Financial Management is to create wealth for the business and its investors, generate money and earn good returns with appropriate risk by making efficient use of the resources of the organization.
The main elements of financial management are Controlling, financial planning and decision making.
- Financial control Financial management is the most important element of financial management because it ensures that the management controls the financial activities to go on as planned, thereby effectively using the company's finances. Financial control is the most basic element to help the financial plan be implemented.
- Financial planning related to the costs of the business; The company's management needs to make sure it has enough money at the time it's needed to run the business. Proper financial planning ensures that the short, medium and long term requirements of the business can be met.
- Financial decision making related to investment, borrowing (financing) and profit distribution of the business.
Difference between Accounting and Financial Management #
- Accounting is more about Reporting, while financial management is more about Controlling a company's financial resources and using them effectively.
- The primary goal of accounting is to provide financial information using standard procedures and rules. In contrast, the goal of formal management is to plan to generate better profits by making efficient use of the company's finances.
- Accounting statements provide financial information to creditors, investors, analysts, regulators, and regulators, while the company's management has a need to use financial management.
- Accounting has two main types of activities, namely financial accounting and management accounting, while financial management is a cross-cutting process that serves three main factors: financial control, financial planning, and financial planning. financial decision making.
- Accounting deals with the reporting of past financial transactions, while financial management deals with intentions and plans for future transactions.
- Accounting provides a company's financial position, while financial management provides an overview of business activities and provides insight into future wealth creation. future.