The Key Points That Differentiate Financial Management And Accounting

People often confuse financial management with accounting. Despite being closely related to finances and funds, both terms have their own respective purpose and functions.

In a company’s ecosystem, financial management and financial accounting are equally important. So, here are the key differences between financial management and accounting.

Financial management and accounting

Financial management is a term used to describe the process of managing the finances and economic resources of a company.

The exact role of financial management may vary depending on the size of the company. However, the sole purpose is generally the same, which is effectively managing a company’s economic activity to achieve financial objectives.

On the other hand, accounting is a process of measuring, processing, and recording a company’s financial transactions.

In terms of role, an accountant summarizes and analyzes financial transactions to be reported to the higher management, creditors, shareholders, investors, and other related parties.

To accomplish the objective, an accountant will follow Generally Accepted Accounting Principles (GAAP).

Financial Management And Accounting

Key differences

In addition to the definition, some key differences differentiate financial management and accounting. Those differences may include the core activity, the objective, and the end-users.

  • The core activity of finance management and accounting is very different. Accounting involves the activity of reporting whereas financial management involves utilizing the resources and assets of a company effectively.
  • The key objective of accounting is to provide a piece of accurate financial information according to the standard procedures and rules of accounting. On the other hand, the objective of financial management is to generate wealth, cash, and good returns through the effective use of the company’s resources.
  • Accounting presents the financial reports to the higher management, creditors, shareholders, investors, and analysts. On the other hand, financial management is mostly used by the company’s management.
  • Accounting is concerned about the company’s past financial transactions, whereas financial management is concerned about the company’s future financial transactions.
  • Accounting can be divided into three categories: financial accounting, management accounting, and cost accounting. On the other hand, financial management has three essential elements: financial reporting, financial control, and financial decision.
  • Accounting provides the company’s financial position. On the contrary, financial management provides the overall view of the company’s business activities and insight into the future of wealth generation.
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So, those are the key differences between financial management and accounting. In summary, accounting involves the activity of reporting, while financial management involves planning. Despite having a lot of differences, both processes are equally important in a company’s system.

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