In this article, we will show you the difference between financial management and financial accounting under the umbrella of finance.
Financial Management and Financial Accounting are a different terms but have a partnership in the field of Finance.
Financial accounting and financial management have two separate functions of finance. When financial accounting requires reporting past financial transactions. On the other hand, financial management requires planning for all future transactions.
What is Finance?
Finance or financial management are specializing around several business and governmental activities. The term “Finance” refers to all matters relating to money in the organization, from preparing the budget, maintaining balance sheets, supervising the flow of capital, investments, financial risk, etc.
The primary difference between financial accounting and financial management is that financial accounting is the process of recording, maintaining and reporting the financial affairs of a company which depicts the clear financial position of the company. In contrast, financial management refers to the management of funds and investment opportunities for various individuals, organizations and other entities.
Difference between Financial Management & Financial Accounting
The primary difference between financial accounting and financial management is that financial accounting is the process of recording, maintaining and reporting the financial affairs of a company which depicts the clear financial position of the company.
In contrast, financial management refers to the management of funds and investment opportunities for various individuals, organizations and other entities.
What is Financial Accounting?
Financial accounting is the process of measuring, processing and recording the financial transactions of an organization. The primary objective of financial accounting is its role in reporting financial information or transactions using GAAP (Generally Accepted Accounting Principles). The mission involves summarizing, analyzing, recording and communicating this information to management, creditors, shareholders, investors, and control officials.
For business accounting, the double-entry method is most commonly used. For each transaction, there will be an entry for credit and debit.
When there is an increase in assets and expenses, it will be recorded as debit entry. It will also mention a decrease in income, liability, and equity.
The opposite will be written in the credit entry. For a single transaction, these two entries must be equal. This type of accounting helps to avoid any human error and clearly shows the position of the company.
Some sole proprietorship companies may use a single entry system for accounting. This method is straightforward in form and does not require experts to prepare it. There is also no need for software packages to do this properly. However, this is not the correct way because it does not show the actual position. It does not represent the creation of assets. Financial reporting is not possible in this way of entering transactions. Government agencies do not recognize this type of financial record maintaining.
What is Financial Management?
Financial management helps in managing the financial and economic resources of the organization. It is concerned with efficiently managing the economic activities of the organization in order to achieve short-term and long-term financial goals. It also helps management in making better financial and investment decisions.
The main objective of financial management is to generate wealth for the business and investors, to earn cash and equivalent returns with adequate risk by using organizational resources efficiently and effectively. Financial managers are an integral part of top management that makes policy decisions involving money. Various strategies like new ventures, marketing campaigns, business expansion to new markets etc., are decided only in consultation with the finance manager.
Key Differences between Financial Accounting vs. Financial Management
Below is a cumulative list of the differences between financial accounting and financial management. There are many ways in which financial accounting and financial management can be distinguished.
- Financial accounting focuses primarily on preparing reports, while financial management includes the assets and resources of the company and their effective use.
- The main objective of financial accounting is to provide financial information using standard procedures and rules, while the main objective of financial management is to create all of wealth, cash and returns through the effective use of company assets.
- Financial accounting provides financial information to management, creditors, investors, analysts and regulators, while financial management is used by the management of a company to forecast its future.
- When asked about the difference between financial accounting and financial management, one can say that the former relates to past transactions and the latter relates to future plans.
- While financial accounting refers to how money is used in the company, it is the financial management that decides how to use it to achieve the best benefits for the company.
- The mainly purpose of accounting is to record and present all financial activities in a way that everyone can understand. Financial management uses this data to make important decisions about future business activities.
- Accounting reports are a summary of financial transactions while management prepares detailed reports on future courses of action.
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