Financial Management vs Accounting: The Main Difference One Should Know

Both financial management and accounting are critical aspects of every business. To run a business properly, financial management vs accounting is required. Financial management vs accounting is also beneficial in making different decisions. It helps in fulfilling a business’s goal. So, one needs to understand the difference between them. 

However, in this blog, we will discuss Financial Management vs Accounting. We will discuss the main difference between them. But before that, let’s learn about Financial Management and Accounting first.

Financial Management vs Accounting: Overview

Accounting is the process of recording, maintaining, and reporting a company’s financial affairs. It shows the company’s clear financial position. Whereas financial management is the management of various individuals, organizations, and other organizations’ finances and investments. Let’s learn about both terms.

Financial Management

It refers to the organization’s effective and efficient management of funds and resources by the wise use of fixed assets and working capital. Management may make better decisions with the help of financial management.

The right use of monetary resources by the firm is determined by effective procurement and efficient financial management. Profit maximization and wealth/value maximization are the primary goals of financial management.

Elements Of Financial Management

Following are the main elements of financial management. Let’s take a look;

Budgeting, Forecasting, and Planning

It connects an organization’s goal to budget planning and managing activities. It also identifies any business-related actions. Financial management helps in examining a business’s financial requirements. It leads to financial planning for the firm.

Financial Reporting

Financial management relies heavily on reporting. Because the yearly accounting statements are used directly by the Company’s management. It helps them to choose their future actions.

Financial Controls

It guarantees that the organization’s economic resources are properly collected and used.

Financial Decisions

When making financial decisions, the financial manager must keep the company’s health in mind. It also helps in the balance of cash flows.

Accounting

Accounting is the measurement, processing, and recording of a company’s financial transactions. The process involves summarizing, analyzing, and recording such data in order to communicate it to management, creditors, shareholders, investors, and supervision or tax officials.

The primary goal is to use Generally Accepted Accounting Principles (GAAP) to report financial data or transactions.

Accounting is divided into 3 categories;

Financial Accounting

It is concerned with the creation of financial statements and the distribution of financial data to external users. Such as creditors, government agencies, analysts, investors, and bankers. The income statement and balance sheet are financial documents. It shows the financial situation of a company over a period of time.

Management Accounting

Financial data is reported to internal users. Such as management and staff for policy-making and day-to-day company operations. Management accounting is a forward-thinking discipline. It focuses on future actions in order to achieve organizational goals.

Cost Accounting

Cost analysis is an aspect of management accounting. Cost accounting keeps detailed records of the costs of numerous products, activities, and services. It is a method for calculating and collecting the cost of a certain product or activity.

Now let’s discuss the main difference between Financial Management vs Accounting.

Financial Management vs Accounting: Key Differences

Basic Definition

Financial Management

Financial Management is an application of basic management concepts. It helps companies to make financial decisions.

Accounting

Accounting is a systematic process. It is the collection, recording, measurement, classification, verification, summarization, interpretation, and communication of financial data.

Primary User

Financial Management

The majority of the company’s management and stockholders.

Accounting

Both the internal and external users use accounting. Such as creditors, investors, analysts, managers, owners and investors, management, workers, consumers, the government, and regulators.

Importance

Financial Management

Financial management is concerned with the Company’s assets and resources. And also with their effective usage.

Accounting

Accounting is the presentation of financial data.t presents the data in the form of financial statements using defined methods and principles.

Objective

Financial Management

Profit maximization and wealth/value maximization are two main objectives of Financial Management.

Accounting

Financial information reporting is the main objective of accounting.

Measurement Of Fund

Financial Management

On the basis of cash flow

Accounting

On an accrual basis

Purpose

Financial Management

Financial management includes the use of this data to make financial decisions.

Accounting

Accounting’s goal is to gather and display facts in a useful way.

Time Frame

Financial Management

Financial Management can do this work anytime.

Accounting

Accountants can do this work quarterly, half-yearly, and annual reports.

Time Focus

Financial Management

It is future-oriented.

Accounting

It is past-oriented.

Reports

Financial Management

The reports are detailed and based on future actions.

Accounting

These are summarized reports in the form of financial statements.

Key Elements And Types

Financial Management

It has no varieties, but there are three crucial parts to the process:

• Financial Planning 
• Financial Control
• Financial decision-making

Accounting

It is divided into 3 categories:

• Financial Accounting
• Management Accounting
• Cost Accounting

Final Words

This has been an overview of Financial Management vs Accounting. We highlight the distinctions between accounting and financial management. Accounting and financial management are both vital for the organization in their own way. While they are both related to finance, they have distinct qualities that separate them differently. 

Accounting is deal with the reporting of financial transactions. Whereas financial management is concerned with the management of the Company’s resources in order to manage future growth. 

We have provided you with all the necessary information regarding financial management vs accounting. So I hope you understand the above Financial Management vs Accounting blog well.