Woman's hand pointing at a financial graphEssentially, business people should be aware of the past, present, and the future of their business in terms of finances. The problem is, not all business people know the difference between finance and accounting. So what’s the difference?

The Difference Between Finance and Accounting

As Consero Global puts it, the focus of accounting is on reporting and compliance in accordance with the GAAP standards or General Accepted Accounting Principles. Otherwise, you could unintentionally violate laws such as failing to pay taxes accurately.

Regarding business operations, inaccurate accounts could result in having excess or limited inventory, inefficient receivables collection, as well as noncompliance with loan contracts.

With accurate analysis, however, accounting could offer ways to understand past business reports so that you could better move forward. By evaluating your financial records, you could see how you spent your funds, its effect on your business, and how these contributed to your growth in terms of profits and revenue.

On the other hand, finance encompasses business laws, taxation, economics, and accounting as well as other fields that contribute to the acquisition of funds and using it. Capital, whether debt or investment is the lifeblood of any business.

Areas including business investment, trade finance, bank loans, and letters of credit all need finance expertise. You must be capable of managing these efforts that happen before, instead of after the fact, as it is with accounting. Put simply, financing is all about ensuring that your business has and utilizes all the resources it requires for daily operations and long-term plans.

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Coming Together

These two crucial functions come together in your business’ financial statements. These impact your business’ financial health. As such, finance decisions should always result in accounting events, such that the outcome of the decision must always be accurately recorded and therefore shape part of your accounting processes.

Every aspect of your business relies on proper accounting and finance. Capital markets generate funding; businesses such as yours distribute it, while institutions and individuals spend it. So whether you’re using money or acquiring it, understanding which stage of the money cycle you’re in will help you make the best possible decisions for your business.