The best way to illustrate this is with a football team. A football team has a Coach who is responsible for using the players he has and positioning them in the right positions to win the games. He must follow a process based upon the rules of the game in positioning these players, providing their equipment and following the guidelines of the sport.
On the other had you have an owner or general manager of the team. His function is to look at the big picture to make the business of football successful for his organization. He is looking at players for the future, longevity of existing players, injury reports and their affect on the teams overall viability. He is involved in the science of managing a football team so that 3, 4 or 5 years from now the team will still be in business and the players will still be viable. This may mean cutting someone or trading someone for a future option but it is all part of the science of football.
Use your promo and get a custom paper on
"Accounting vs. Finance: Compare And Contrast".
Now that illustration was used because accounting is like the Coach. Accounting is a process that involves the processing and measuring of various economic activities that a business is involved in and then conveying that information to various people. You could say it is a process of systematically recording the various transactions a business may be involved in over a period of time. Accounting is generally an “after the fact” function that deals with conveying why, how and what was done with the moneys a company has available. Like the Coach uses the players that he has and shows their positions, accounting post the money of a company in the positions where it can show the best for the company while following the Generally Accepted Rules of Accounting Practice.
Finance on the other hand is more of a science that deals with the allocation of a company’s assets and liabilities. Just like the Owner or GM is planning for the future of the team 5 years down the road, the science of finance is considering the time value of the company’s money and determining the best way to manage that money. So finance is actually a “present day or future looking” function that deals with the planning and economic theories surrounding the best way to manage the resources of the company. While the GM or Owner of a team is not specifically concerned about a specific player in the position of Quarterback, he is concerned with the long term viability of the position and what it will take to make sure the best player available is on his team to fill that position when the time comes.
Thus accounting is the recording of what has been done and finance is the planning of what should be done in the future. A bookkeeper or accountant can do the accounting but it takes a financial planner or investment strategist to handle the financial needs of a company. The two functions are not the same and should not be used interchangeably.
