Accounting is one facet of finance and both are part of economics. Accounting has always been carried out in financial dealings but the manner in which it is done has changed significantly through the centuries. Even though there are different methods used today, the principle behind it remains the same. Accounting is the recording of financial transactions in a manner that shows all sales and purchases to determine the financial success or failure of a business.
By examining the financial records of a business a person is able to determine how financially secure the business is. This is done through accounting. Finance is a much larger concept and involves management of a firm, money management, capital markets, a country’s economy, international trade and other aspects.
What is finance?
Finance is the study of how funds are managed. There are different branches of finance, such as business finance, personal finance and public finance. It is the study of how businesses and organizations raise and spend money and it looks at the risk factors involved in the various ventures. Scientific techniques and principles are used to manage financial matters especially income and expenses.
The stock market is a very important part of finance. All investments have an effect on it as well as events that take place all over the world.
What is accounting?
As a subset of the whole concept of finance, it is through accounting that business owners and shareholders can determine profit and loss. Examination of the financial statements prepared by the accountants enables then to make decisions about the future of the business. Two of the main documents that are prepared in accounting are profit and loss statements and balance sheets and presents the financial information for a period of time, such as a full year or a portion of a year.
Accounting is a crucial part of the finance of any business, organization or country. It provides the data on which future decisions are based, such as whether to expand, whether to lay off staff or even whether to close the business. In addition to monitoring the financial activities of the business, accounting also has to oversee the investments and take all possible risks into consideration.
Summary
Finance is the umbrella under which accounting is only a small part. Accounting provides the small details that finance depends on. You could say that accounting gathers the facts and finance puts these facts to work. They are both critical to the economy and without accounting, finance would not be able to function properly. The end products produced by accounting are put to greater use in finance. Although they are both essential and accounting is only a small part of finance, finance depends on accounting.