Difference Between Accounting and Financial Management

They are the two separate functions where accounting requires reporting past financial transactions, whereas the other requires planning about future transactions.

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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 financialObjective Is Reporting The FinancialThe main objective of the financial reporting for any company is to present the necessary information concerning the company’s financial position, the cash flow position, and various obligations relevant for its users for tracking business performance, understanding financial health, and informative decision making.read more information or transactions using Generally Accepted Accounting Principles (GAAP).

Accounting can be divided into several fields like Financial AccountingFinancial AccountingFinancial accounting refers to bookkeeping, i.e., identifying, classifying, summarizing and recording all the financial transactions in the Income Statement, Balance Sheet and Cash Flow Statement. It even includes the analysis of these financial statements.read more, management accounting, tax accountingTax AccountingTax accounting is the framework that considers the tax returns instead of public financial statements disclosure while recording and presenting the business transactions in the books of accounts. It complies with the rules and policies of the company’s Internal Revenue Code.read more, and cost accounting. However, the two main types are:

  • Financial Accounting: Reporting financial informationFinancial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more to external users like creditors, suppliers, government agencies, analysts, etc. is financial accountingManagement accounting: Reporting financial informationFinancial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more to internal users like management and employees is called management accounting.

Financial statements use standard procedures and accounting principlesAccounting PrinciplesAccounting principles are the set guidelines and rules issued by accounting standards like GAAP and IFRS for the companies to follow while recording and presenting the financial information in the books of accounts.read more 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 planningFinancial PlanningFinancial planning is a structured approach to understanding your current and future financial goals and then taking the necessary measures to accomplish them. Because this does not begin and end in a specific time frame, it is referred to as an ongoing process.read more, 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 controlFinancial ControlFinancial controls refer to the development of policies and procedures by an organization to manage its financial resources and operate efficiently.read more 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 payoutsDividend PayoutsThe dividend payout ratio is the ratio between the total amount of dividends paid (preferred and normal dividend) to the company’s net income. Formula = Dividends/Net Incomeread more.

Accounting vs. 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 reportsAccounting ReportsAccounting reports are created using a company’s accounting data to check ledger-by-ledger transactions over a given time period. Accounting reports also include financial statements such as cash flow statements, profit and loss statements, and balance sheets.read more the financial information to creditors, investors, analysts, managers, and regulators, whereas the company’s management uses financial management.Accounting has two main typesAccounting Has Two Main TypesThere are different types of the accounting which an organization can follow as per the scope of its work and need of stakeholders. Some of them include financial accounting, forensic accounting, accounting information system, managerial accounting, taxation, auditing, cost accounting, etc.read more – 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 PrinciplesGenerally Accepted Accounting PrinciplesGAAP (Generally Accepted Accounting Principles) are standardized guidelines for accounting and financial reporting.read more (GAAP) provided by the Financial Accounting Standards Board (FASB) in the US and Financial Reporting Council (FRC) in the UK.

Comparative Table

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.

  • Create wealth

  • Generate cash

  • Earn good returns

  • Effective use of assets

  • Financial Accounting

  • Management Accounting

  • Financial planning

  • Financial control

  • Financial decision making

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 –

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