When it comes to finance and accounting, most might often lump them together as the same discipline.
While it is true that what they mostly do are managing numbers, the difference between the two is accounting is more related to the day-to-day in and outflow of money while finance is being in control and plans the company’s assets and liabilities for future expansion.
Finance is usually referred to as the capability to effectively manage a company’s assets. Did you know back in the 1980s, a stock exchange would take more than a month to settle. It was reduced to two weeks when electronic engines were developed and currently take two days.
The complex process of financing involves manoeuvring a wide variety of assets ranging from physical office equipment to software systems on the company’s servers. People who work in the finance department, such as Financial Planner, Budget Manager, Purchasing analysts, working on behalf of the individual or the company, should be sensitive and responsible for managing and acquiring assets necessary for the situation or the growth plan.
Most would think of accounting when dealing with numbers in business. While an accountant's job is mostly organizing and managing records such as sales, cost of goods sold and other expenditures in the business, they also audit different statements such as the income statement, balance sheet and statement of cash flows.
Did you know that the words debt and credit were derived from the word in Latin for “he owes” and “he trusts”. Accounting is the action for bookkeeping, where accountants must be concise with the five rules of accounting, namely Revenue, Expense, Matching, Cost and Objectivity Principles.
Revenue and Expenditure Principle are similar in terms of recording a transaction when the product or service is provided instead of the customer or provider billed for it. Matching, Cost and Objectivity refers to the bookkeeping process to be kept on a coordinated, timely and objective basis.
Differences between the two
While accounting is the process of recording sales and numbers-related transactions, finance is managing current assets for the purpose of future growth and expansion. The main difference between the two is that the value of assets is based on a different metric, accounting being backwards-looking and finance being forward-looking.
Accounting mostly values an asset by their current and past values (depending on the asset) based on their historical information such as purchase price and depreciation. While finance, which may sound a lot like a soothsayer (a person who predicts the future), based assets on their projected benefit or values that they will bring upon the organisation.
The metric difference would pose differences in measuring financial performance and assessing value. Accounting basing the assets on an accrual basis, where transactions are recorded when the deal is agreed upon, it depicts a more descriptive and comparative view of the company’s year on growth, revenue, cost and profits which accountants can use to compare the company’s performance.
Finance mostly records transactions when cash is exchanged and asset values that are intangible due to the forecasting nature of the analytical and evaluation process of determining the worth and value of the company.
The difference between accounting and finance
What is Zetl?
Zetl is Asia-Pacific’s first financing company for asset-light businesses. We help services businesses like recruitment agencies, consultancies, and tech-based startups manage their monthly operating expenses by providing growth, payroll, and working capital financing.
Zetl is headquartered in Hong Kong with a mission to finance the next generation of businesses in Asia-pacific. These are often young companies without a multi-year operating history that don’t have equipment, inventory, or property which they can use for financing. Zetl offers flexible financing solutions for them that are fully confidential, digital, fast, and require no personal guarantees.