Many people don't understand the difference between finance and accounting. In a company, finance and accounting are usually within the same division, the finance division. However, finance and accounting have distinct duties and responsibilities, making them highly risky to combine.
Yes, financial management is crucial in any company. If your company wants to run smoothly and grow as expected, and avoid fraud, you must implement sound financial management.
One way to do this is by using reliable accounting software like Accurate Online. This financial digitization can simplify financial management and make recording more accurate.
Financial management includes financial recording, payments, billing, budget efficiency, and company budget adjustments.
So, to better understand, let's take a look at the complete differences between finance and accounting in this article.
The Difference Between Finance and Accounting
Finance is the division that directly manages and holds money, both in the form of cash and demand deposits. According to Ridwan and Inge, authors of the book "Management of Finance," finance is the art of managing money, which impacts the lives of every individual or organization.
Meanwhile, accounting is the art of measuring, communicating, and interpreting financial activities. According to Wikipedia, accounting is defined as the measurement, explanation, and assurance of financial information that will assist management in decision-making.
Therefore, it can be concluded that finance manages the inflow and outflow of funds. Accounting then processes this financial activity data and presents it in financial reports.
Differences in Finance and Accounting Duties
1. Finance Department Duties
The finance department is at the forefront of the finance division. All incoming funds are received by the finance department. Likewise, for outgoing funds, the finance department pays out the funds to vendors and other parties.
Generally, the finance department is responsible for managing the company's cash. Cash in the form of banknotes and coins for the company's petty cash needs is stored, counted, and used as needed by the finance department. Finance is also responsible for managing the company's cash availability and accurately recording all transactions.
Another finance department task is managing the funds held in the company's bank account. Finance handles banking administration, such as issuing powers of attorney, issuing checkbooks, sending bank statements, and so on. If there are bills to be paid, finance is responsible for disbursing the funds.
2. Accounting Department Duties
It's clear, isn't it? The difference between finance and accounting is evident in their duties. Accounting does not handle company funds, either in the form of cash or bank account balances. Accounting also does not have a power of attorney to manage the company's bank accounts like the finance department.
Accounting's role is to receive financial activity records from the finance department. These records include the total beginning balance of petty cash and bank accounts, any disbursement transactions paid, financial income, and the ending balance of petty cash and bank accounts.
Accounting is responsible for ensuring that all financial transaction documentation from finance is complete and accurate according to accounting standards. Once everything is complete and accurate, accounting enters each transaction into the financial journal and general ledger.
Accounting then processes the financial data and presents it in the form of financial reports, such as the balance sheet, profit and loss statement, and other reports as needed.
Other examples of reports typically produced by accounting include sales receivables reports, tax reports, budget comparisons, and actual results. Based on these financial reports, management can make decisions about adjusting the company's budget.
In addition to possessing accounting expertise, finance professionals must also possess a high level of honesty and integrity.
Companies also need to establish strict procedures to eliminate opportunities for fraud. One way to do this is by separating the finance and accounting functions.
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