FINANCE AND ACCOUNTING

SIVALEKSHMI K BAIJU
Student ID - 70565
The market economy is a money-based economy. Finance and accounting are fundamental
aspects of the market economy. In businesses, financial processes and phenomena make up
corporate finance and accounting. The functions of these aspects overlap but have
fundamental differences. The functioning of every business enterprises involves ongoing
decision-making, with financial management serving as the bridge between different
aspects of the company's activities. Accounting deals with the registration of past event,
while finance mainly refers to the future of these enterprises.
 FINANCE

Finance deals with the management of money, assets, investments, and

liabilities. It involves analyzing the flow of funds within an organization or
between entities, making financial decisions and managing risks. Finance
encompasses various subfields, including corporate finance, investment
management, financial markets, banking, and personal finance.
 ACCOUNTING

Accounting is the process of recording, summarizing, analyzing, and reporting

financial transactions of a business or organization. It provides valuable
information for decision-making, measuring performance, and ensuring
compliance with regulatory standards.
 Difference between Finance and Accounting
Finance
• Planning and management of the structure of the
company's assets and liabilities,
• Analyses the financial performance of the
company.
• Finance emphasizes the future of the company
and revolve around investments, effects, and
expenditures.
• Finance utilizes tools like financial ratios,
valuation techniques, risk analysis models, capital
budgeting methods and financial forecasting,
• Finance analysis and decisions are often driven by
internal management teams, financial analysts,
investors, lenders, and corporate executives.
Accounting
• Preparation of financial statements in accordance
with specific standards.
• Development of accounts, confirming balances,
clearing inventories and managing all records.
• Accounting focuses on past transactions and
performance evaluation over a specific period.
• Accounting employs methods like bookkeeping,
journal entries, ledgers, and financial statements.
• Accounting information is used by internal
stakeholders (e.g., management, investors,
creditors) and external parties (e.g., regulators, tax
authorities, shareholders).
 Finance and Accounting
• Accounting provides finance with accurate financial data, including records of transactions, which finance then uses
to analyze the company's financial health.
• Finance uses the financial reports prepared by accounting to make informed decisions about investments, budgets,
and financial strategies.
• Accounting data helps finance in forecasting future revenues, expenses, and cash flows, which are crucial for
planning and budgeting.
• Accounting records financial transactions, enabling finance to identify and manage various financial risks
effectively.
• Accounting ensures that financial records adhere to regulatory standards, providing finance with reliable data for
compliance reporting and tax filings.
• Accounting produces financial statements that finance uses to communicate the company's financial performance to
stakeholders such as investors and creditors.
• Finance and accounting collaborate to improve financial reporting processes, ensuring accuracy, efficiency, and
compliance with evolving standards.
The significance of finance and accounting in the context of a market economy and corporate operations and
the difference and similarities between finance and accounting are discussed here. Some other points to
summarize:

• In a market economy, businesses operate on a money basis, requiring funds for operations and payments
for factors of production. Liquidity, or the ability to pay liabilities, is crucial.

• Financial decisions are integral to the functioning of a company, with the financial manager considering
factors like company size, growth rate, capital structure, and asset composition. The balance sheet provides
essential information for financial evaluation.
• The finance director plays a pivotal role in managing the financial aspects of the enterprise, with the size
and importance of the financial department varying based on the company's size. In larger companies, a
separate financial department is common.
• While finance focuses on future planning and management, accounting deals with past events.