Difference Between Accounting and Financial Management
The key difference between Accounting vs financial management is that Accounting is the process of recording, maintaining as well as reporting the financial affairs of the company which shows the clear financial position of the company, whereas, the financial management is the management of the finances and investment of different individuals, organizations and other entities.
They are the two separate functions where accounting requires to report past financial transactions whereas the other requires to plan about future transactions.
What is Accounting?
Accounting is measuring, processing and recording of financial transactions of an organization. The process is to summarize, analyze and record such information to be reported to management, creditors, shareholders, investors, and the oversight officials or tax officials.
The major objective is reporting the financial information or transactions using Generally Accepted Accounting Principles (GAAP).
Accounting can be divided into several fields like financial accounting, management accounting, tax accounting, and cost accounting. The two main types are:
- Financial Accounting: Reporting financial information to external users like creditors, suppliers, government agencies, analysts, etc. is financial accounting
- Management accounting: Reporting financial information to internal users like management and employees is called management accounting.
Financial statements use standard procedures and accounting principles laid by organizations such as the Financial Accounting Standards Board (FASB) in the United States and the Financial Reporting Council in the United Kingdom.
What is Financial Management?
Financial Management helps to manage the finances and economic resources of the organization. It is about managing the economic activities of the organization efficiently to achieve financial objectives. Financial management aids management in better decision making.
A key objective of Financial management is to create wealth for the business and investors, generate cash, earn good returns at adequate risk by using the organizational resources efficiently.
Key elements of financial management are financial planning, control, and decision-making.
- Financial planning involves funding; the management of the firm needs to ensure that adequate funds are available at the time of need to run the business. Good financial planning ensures the short, medium and long-term requirements of funds can be fulfilled.
- Financial control is the most important element of management as it ensures efficient utilization of the firm’s assets.
- Financial decision-making deals with investment, financing options, and dividends part of the business so that the firm generates a good return on investments and distribute its wealth amongst the shareholders through dividend payouts.
Accounting vs Financial Management Infographics
Key Differences
- Accounting is more about reporting whereas financial management involves assets and resources of the company and their effective utilization
- The key objective of accounting is providing financial information using standard procedures and rules whereas the objective of formal management is to create wealth, generate cash and earn good returns by effective use of the company’s assets.
- Accounting reports the financial information to creditors, investors, analysts, management, and regulators whereas financial management is used by the management of the company.
- Accounting has two main types – financial and management accounting whereas financial management is a process with three main elements i.e. financial planning, financial control, and financial decision making
- Accounting involves reporting past financial transactions whereas the other management involves planning about future financial transactions.
- Accounting gives the financial position of the company whereas financial management gives a holistic view of the business activities and provide insight into the future generation of wealth
- Accounting follows Generally Accepted Accounting Principles (GAAP) provided by the Financial Accounting Standards Board (FASB) in the US and Financial Reporting Council (FRC) in the UK
Comparative Table
| The basis for Comparison | Accounting | Financial Management |
| Basic Definition | Art of recording and reporting past financial transactions | Manages assets and liabilities of the firm to plan for future growth |
| Why is it important? | It gives the financial position of the business | It helps to decide for future projects and manage the assets |
| Who are the end-users? | Management, shareholders, regulators, analysts, creditors | Majorly management of the Company and the shareholders |
| Key objectives | Reporting financial information |
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| Types and key elements | It has two major types:
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There are no such types but the process involves three key elements:
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Final Thoughts
Accounting and financial management are both important in their own capacity for the company. While both are part of finance but they have their own differences, which sets them apart from each other. While accounting revolves around reporting financial transactions whereas financial management is about managing the Company’s resources for managing future growth.
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