05 Mar How is Finance and Accounts Interrelated?
For those who are not aware of the dynamics and definitions, finance and accounts may mean the same thing. However, while they are related they are both separate spheres of study and operation. When running a business, hiring employees or choosing subjects to study in school, it is important to know the difference between the two so that the process of doing homework or assignments becomes simpler.
Once you start studying commerce, the difference will become fairly evident. However, if you have not quite grasped the concepts yet, below are a few ways in which finance and accounts are both different yet interrelated.
Defining Accounts and Finance
Both accounts and finance requires a sound knowledge of mathematics and business management. In order to study accounts, you must have an understanding of finance; and in order to study finance, you must have an in depth knowledge of accounting.
Accounting refers to bookkeeping. It means keeping a track of income, expenditure, profit, loss, invoices, payables, investments, contracts and other monetary accounts. Accountants are required to file and monitor the monetary resources of the company. They basically make the job of the finance department a little simpler.
Finance means the study of accounts in order to make various business decisions. Finance is an important department because this helps the business decide where to invest their funds, how to change strategies in order to increase the flow of income and profit, how to allocate resources and expand the company in a way that does not hinder or compromise the organization.
To know more about account and finance you may consult with online professional help websites. They will give you a clear view about these subjects.
Types of Finance
As stated above, finance is a broad topic that deals with accounts, tax, liabilities, investments and other areas in order to create an overview and judge business operations. There are various types of finance that you will learn about and each has their own method of working.
- Personal Finance:
- This deals with finance and financial possessions of individuals.
- It covers areas of unforeseen events, transfer of wealth, inheritance, etc.
- It also establishes the workings of tax and liabilities.
- Covers the developments of savings, planning, budget, purchase of large appliances and automobiles, real estate, education etc.
- Each individual is required to know their financial standing in their day to day lives.
- Finances should be planned in a way that is reliable and works out in the long term.
- Having a financial goal is absolutely crucial. This will encourage you to save, invest appropriately and make good monetary decisions.
- Planning for the future is extremely important, especially when considering retirement.
- Corporate Finance
- This deals with the financial situations of businesses and organizations on a large scale.
- It deals with funding, capital structures and management of shareholders.
- There are various tools used to analyse and allocate resources in the most appropriate manner to ensure the growth of the company.
- Objectives are set up so that there is something to work towards.
- There is the study of cash flows, budgets and other sections so that these decisions can be worked out.
- Each year there is a portfolio created to study how many goals have been reached and what was required to reach them.
- The successes of these projects are not always guaranteed. This is why it is necessary to study the financial situation regularly and change strategies to avail of the best outcome.
- Risks are also measured. Risk management is crucial in case of an event that requires an excess of funds or a project going south.
- This helps to create a viable estimate and allocate funds accordingly.
- Public Finance
- Public finance is usually studied separately because of the fact that it is a broader topic.
- This deals with finances of the government, public corporations and schools.
- Involves long term goals, investments, debts and other government financial operations.
In class, each of these types needs to be studied individual to ensure that you have understood the requirements, attributes and functions. When choosing to pursue finance, a sound knowledge of the basics is absolutely essential.
Elements of Accounts
There are a number of elements of accounting that need to be kept in mind while studying. These are as follows:
- Current assets include bills, cash, checks, cash in bands, funds, coins, etc.
- Includes receivables from customers, dues from other employees, rent and interest.
- Each business has an inventory which is considered as assets that are held for sale.
- There are many prepaid expenses also included here like rent, office supplies and investments.
- There are non-current assets as well.
- This occupies the status of long term investments like stocks and bonds.
- Land and buildings are a one-time purchase and so they are considered assets since their value rises with the passage of time as well.
- Equipment like machinery, furniture, computer and office equipment is also included in this category along with long-term intangibles like copyrights and trademarks.
- Here too there are current and non-current liabilities.
- Current liabilities include payables like accounts, notes, interest and rent payables.
- Each company needs to make short term provisions in case something does not go according to plan. This is a liability as well.
- It is not always possible to have funds for every venture. Borrowings, both long and short term are taken into account here.
- Inclusive of tax liabilities for that period or cycle.
- Non-current liabilities involve bonds, taxes and other long term expenses.
Relationship between Accounts and Finance
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- The study of the accounts mentioned above allow those studying and working in finance determine company strategies, modes of operation, investment plans, long term goals and other aspect of a business.
- It is impossible to plan a financial year without tracking the accounts of the previous year.
- A cumulative study propels a business to make more informed decisions based on all the assets, liabilities, laws the state and country, etc.
- In order to make a profit a business must work according to the accounts of each year to make good financial decisions.
- Hence, finance and accounts are interrelated but not the same at all. Both topics must be studied individually in order to gain a complete understanding of each operates in the business work.