What is the difference between finance accounts?

Answer 1

The following is the distinction between Accounts & Finance:

1) Score keeping Vs Value Maximising:

Accounting is concerned with score keeping, whereas finance is aimed at value maximising. The primary objective of accounting is to measure the performance of the firm, assess its financial condition, and determine the base for tax payment. The principal goal of financial management is to create shareholder value by investing in positive net present value projects and minimising the cost of financing. Of course, financial decision making require considerable inputs from accounting. An accountant's role is to provide consistently developed and easily interpreted data about the firm's past, present, and future operations. The financial manager uses these data, either in raw form or after certain adjustments and analyses, as an important input to the decision making process".

2) Accrual Method vs Cash Flow Method:

The accountant prepares the accounting reports based on the accrual method which recognises revenues when the sale occurs (irrespective of whether the cash is realised immediately or not) and matches expenses to sales (irrespective of whether cash is paid or not). The focus of the finance manager, however, is on cash flows. He is concerned about the magnitude, timing, and risk of cash flows as these are the fundamental determinants of values.

3) Certainty vs Uncertainty:

Accounting deals primarily with the past. It records what has happened. Hence it is relatively more objective and certain. Finance is concerned mainly with the future. It involves decision making under imprefect information and uncertainty. Hence it is characterised by a higher degree of subjectivity.