Question

How do accountants and financial managers differ in their use of financial information? Why is cash flow more significant to a financial manager than it is to an accountant?

Answer 1

The key difference between Accounting vs financial management is that Accounting is the process of recording,

whereas, the financial management is the management of the finances and investment of different individuals, organizations and other entities

whta is accounting.

Accounting is measuring, processing and recording of financial transactions of an organization. The process is to summarize, analyze and record such information to be reported to management, creditors, shareholders, investors, and the oversight officials or tax officials.

The major objective is reporting the financial information or transactions using Generally Accepted Accounting Principles (GAAP).

Accounting can be divided into several fields like financial accounting, management accounting, tax accounting, and cost accounting. The two main types are:

• Financial Accounting: Reporting financial information to external users like creditors, suppliers, government agencies, analysts, etc. is financial accounting
• Management accounting: Reporting financial information to internal users like management and employees is called management accounting.

What is financial management.

Financial Management helps to manage the finances and economic resources of the organization. It is about managing the economic activities of the organization efficiently to achieve financial objectives. Financial management aids management in better decision making.

A key objective of Financial management is to create wealth for the business and investors, generate cash, earn good returns at adequate risk by using the organizational resources efficiently.

Key elements of financial management are financial planning, control, and decision-making.

1. Financial planning involves funding; the management of the firm needs to ensure that adequate funds are available at the time of need to run the business. Good financial planning ensures the short, medium and long-term requirements of funds can be fulfilled.
2. Financial control is the most important element of management as it ensures efficient utilization of the firm’s assets.
3. Financial decision-making deals with investment, financing options, and dividends part of the business so that the firm generates a good return on investments and distribute its wealth amongst the shareholders through dividend payouts.

Key Differences

• Accounting is more about reporting whereas financial management involves assets and resources of the company and their effective utilization
• The key objective of accounting is providing financial information using standard procedures and rules whereas the objective of formal management is to create wealth, generate cash and earn good returns by effective use of the company’s assets.
• Accounting reports the financial information to creditors, investors, analysts, management, and regulators whereas financial management is used by the management of the company.