Accounting vs Financial Management

Accounting vs Financial Management Differences

Accounting and Financial management are two separate functions where, accounting requires to report past financial transactions whereas the other, financial management requires to plan about future transactions.

This article will discuss in the detail about accounting vs financial management and major differences between them.

What is Accounting?

Accounting is measuring, processing and recording of financial transactions of an organisation. 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 of Accounting 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:

1. Financial Accounting: Reporting financial information to external users like creditors, suppliers, government agencies, analysts etc. is financial accounting
2. 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.

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What if Financial Management?

Financial Management helps to manage the finances and economic resources of the organisation. It is about managing the economic activities of the organisation efficiently to achieve financial objectives. Financial management aids the 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 organisational resources efficiently.

Key elements of financial management are financial planning, financial control, and financial decision-making.

1. 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 short, medium and long-term requirement of funds can be fulfilled.
2. Financial control is the most important element of management as it ensures efficient utilization of firm’s assets.
3. 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 between Accounting vs Financial Management

Here are the key differences between Accounting vs Financial Management –

• 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 financial management is to create wealth, generate cash and earn good returns by effective use of 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 accounting 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 financial 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 Financial Accounting Standards Board (FASB) in the US and Financial Reporting Council (FRC) in the UK

Head to Head Differences Between Accounting vs Financial Management

Let us now look into the head to head differences between Accounting vs Financial Management:

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	Create wealth Generate cash Earn good returns Effective use of assets
Types and key elements	It has two major types: Financial Accounting Management Accounting	There are no such types but the process involves three key elements: Financial planning Financial control Financial decision making

Accounting vs Financial management – Final Thoughts

Accounting and Financial management are both important in their own capacity to the Company. While both are part of finance but accounting and financial management 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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