Difference Between Accounting and Financial Management
The key difference between Accounting vs. financial management is that Accounting is the process of recording, maintaining, and reporting the company's financial affairs, which shows the company's clear financial position. In contrast, financial management manages the finances and investments of different individuals, organizations, and other entities.
They are the two separate functions where accounting requires reporting past financial transactions, whereas the other requires planning about future transactions.
Table of contents
- Difference Between Accounting and Financial Management
- What is Accounting?
- What is Financial Management?
- Accountingvs. Financial Management Infographics
- Key Differences
- Comparative Table
- Final Thoughts
- Recommended Articles
What is Accounting?
Accounting is the 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 primary 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. However, 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 organization's economic activities 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, and 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 firm's management needs to ensure that adequate funds are available at the time of need to run the business. Proper financial planning ensures that funds' short, medium, and long-term requirements can be fulfilled.
- Financial control is the most critical management element as it ensures efficient utilization of the firm's assets.
- Financial decision-making deals with investment, financing options, and dividends part of the business. The firm generates a good return on investments and distributes its wealth amongst the shareholders through dividend payouts.
Accountingvs. Financial Management Infographics
Key Differences
- Accounting is more about reporting, whereas financial management involves the assets and resources of the company and their effective utilization.
- The key objective of accounting is providing financial information using standard procedures and rules. In contrast, 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, managers, and regulators, whereas the company's management uses financial management.
- 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 other management involves planning future transactions.
- Accounting gives the company's financial position, whereas financial management provides a holistic view of the business activities and provides 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 on 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 |
|
| Types and key elements | It has two major types:
| There are no such types, but the process involves three key elements:
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Final Thoughts
Accounting and financial management are critical in their capacity for the company. While both are part of finance, they have their differences, which set them apart. While accounting revolves around reporting financial transactions, financial management is about managing the company's resources for managing future growth.
Recommended Articles
This has been a guide to Accounting vs. Financial Management. Here we discuss the Accounting and Financial management differences with infographics & comparative tables. You may also have a look at the following articles for gaining further knowledge –
- Accounting System
- Financial Structure - Meaning
- Fund Accounting
- Operating Leverage vs Financial leverage
