Finance deals with the financing of a company’s operations; Accounting is about recording and reporting financial data.
Business finance and accounting are two closely related activities in a business. Business finance, also called corporate finance, includes activities that help a company finance its activities and operations. Accounting is the process of recording and reporting financial numbers for business transactions. The relationship between business finance and accounting exists because the former activity often uses numbers from the latter. In other cases, business finance analysts review accounting information to determine the efficiency and effectiveness of operations.
Finance people often develop budgets that track future financial expenses.
A company often separates its financial and accounting functions among several workers. This ensures that the company has adequate segregation of duties to prevent employees from manipulating information. The company also needs to create specific job responsibilities to further define roles. Large companies may also need two separate departments to process their financial data. In many cases, the finance department will have fewer employees than the accounting department.
Financial statements are usually the final output of a company’s accounting department. These statements represent the record of a specific period in the life of a company. The company’s finance and accounting staff work together to present financial statements to senior management. For example, the company’s finance staff may review and make suggestions on how to correct the financial statements. Company finance staff can also create key figures as well as statements to provide additional information about the data.
Another relationship between business finance and accounting is the creation of a company budget or the analysis of working capital. Finance people often create budgets to present expected future financial expenses. Accountants prepare information at the end of each month that affects current budgets. The finance staff makes sure the company is on budget and that all the numbers are in the correct accounts. Creating new budgets also requires the use of current accounting information.
Working capital analysis and other uses of accounting information also extend the relationship between business finance and accounting. The finance staff must ensure that the business has enough cash to operate. Often a combination of debt or equity financing is needed to overcome cash shortfalls calculated by a working capital or cash budget. Without accounting information, these budgets and related deficiencies are almost impossible to determine. The finance staff may also make other recommendations for working capital adjustments.
Other possible decisions that result from corporate finance include business valuation, investment decisions, and dividend planning. All of these decisions are a functional part of the relationship between business finance and accounting. Companies can also create other relationships based on their financial data needs.