Accounting vs Financial Management: The Major Distinction You Should Know

Do you want to make your career in the field of business? If yes, then your choice is great. But do you know what kind of majors you have to select to understand the area of business? Well, There are different majors you have to study in business. For example, accounting, marketing, finance, sales, etc. But the fields in which students want to pursue are accounting and finance. That is why Accounting vs Financial Management is a common question of students.

Students are often confused about which major to choose between them. Therefore, it is essential for them to understand accounting vs financial management.

Yes, sometimes students do not know the key difference between them. They are not able to select the one major that is perfect for them. They end up selecting the wrong major for themselves. However, if they know the difference between both, they are able to select the most accurate one. So, let’s discuss both fields’ differences.

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Accounting vs Financial Management: Overview

Well, accounting is recording, maintaining, and reporting a company’s financial affairs. It shows the company’s clear financial position. But, financial management is the management of various individuals, organizations, and other entities’ finances and investments.

To know more about these fields, let’s learn about both fields in detail.

Accounting

Accounting is a process of reporting financial data. It is done by;

• Generally Accepted Accounting Principles (GAAP)
• International Financial Reporting Standards (IFRS).

Moreover, the rules and regulations for accounting preparation and presentation are set by;

• Financial Accounting Standards Board (FASB)
• Financial Reporting Council
• Securities and Exchange Commission (SEC)
• Internal Revenue Service (IRS)

According to the financial literature, there are three main categories of accounting. They are as follows;

Financial Accounting

It deals with the creation of financial statements. Also, the presentation of financial data to external users. Such as creditors, government agencies, analysts, investors, and bankers. Moreover, the income statement and balance sheet are financial documents. It shows the financial situation of a company over a period of time.

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Management Accounting

It reports the financial data to internal users. For example, management and employees of policy-making and day-to-day company operations. Moreover, it is a forward-thinking discipline. It focuses on future actions to achieve organizational goals.

Cost Accounting

It is a subset of management accounting. Cost Accounting keeps detailed records of the costs of numerous products, activities, and services. Also, it is a method for calculating and aggregating the cost of a certain product or activity.

However, in this battle of accounting vs financial management. Let’s learn about financial management in detail.

Financial Management

It uses fixed assets and working capital. So that it can efficiently deal with the management of monetary resources. For example, financial and economic. In addition, management may make better decisions with the help of financial management.

Moreover, the right use of monetary resources helps in effective procurement. Also, in well-ordered financial management. Profit maximization and wealth/value maximization are the primary goals of financial management.

Also, there are some elements of financial management in the business organization. They are as follows;

Budgeting, Planning, and Forecasting

It connects an organization’s goal to budget planning and monitoring procedures. Also, it identifies any business-related actions. Financial management helps in examining a business’s financial requirements. It leads to financial planning for the firm.

Financial Reporting

Financial management relies heavily on reporting. Because the company’s management needs yearly accounting statements. As they have to choose a future direction.

Financial Controls

It guarantees that the organization’s economic resources are properly sourced and used.

Financial Decisions

Financial managers must keep the organization’s existence in mind when making financial decisions. For example, financial decisions on investments, financing alternatives, and dividends. Moreover, it also assists in the balance of cash inflows and outflows.

Now, let’s discuss the main difference between accounting and financial management.

Accounting vs Financial Management: Key Difference

The top nine distinctions between accounting and financial management are as follows;

Basic Definition

Accounting

Accounting is the systematic collection, recording, measurement, classification, verification, etc., of financial data.

Financial Management

Financial management is an application of basic management concepts of financial decision-making.

Primary User

Accounting

Both internal and external users use accounting. For example, creditors, investors, analysts, managers, owners and investors, management, etc.

Financial Management

The majority of the company’s management and stockholders.

Importance

Accounting

Accounting uses defined methods and principles. It presents the financial data in the form of financial statements.

Financial Management

Whereas, it deals with the company’s assets and resources. Also, how to use it efficiently.

Objective

Accounting

The main objective of accounting is financial information reporting.

Financial Management

On the other hand, financial management’s main objective is profit maximization. Also, wealth/value maximization.

Purpose

In this battle of accounting vs financial management. Let’s learn the purpose of both fields.

Accounting

Accounting’s goal is to collect and show the facts in a useful way.

Financial Management

While financial management requires the use of this data to make financial decisions.

Measurement Of Fund

Accounting

On an accrual basis.

Financial Management

On the basis of cash flow.

Timeframe

Accounting

Accounters provide the records quarterly, half-yearly, and annual.

Financial Management

But, financial management does this activity at any time.

Time Focus

Accounting

Accounting is past-oriented.

Financial Management

Whereas, financial management is future-oriented.

Reports

Accounting

It requires summary reports in the form of financial statements.

Financial Management

It required a detailed report based on future actions.

Final Words

However, we have discussed accounting vs financial management in the above blog. We have learned the vital points of difference between both fields. To sum up, we can say that both fields are vital for the organization in their own right.

Also, both are related to money. Accounting deals with the reporting of financial transactions. Whereas, financial management deals with the management of the Company’s resources. Because it manages the future growth.