All organizations, including government agencies and charities, rely on accounting and finance to chart adequate strategies for profitability. At the end of each fiscal year, publicly listed companies report operating data in accordance with financial reporting norms. These include generally accepted accounting principles, U.S. Securities and Exchange guidelines and international financial reporting standards.
Accounting enables organizations to record, report and analyze corporate transactions. Translating raw, non-financial data into accounting information is cardinal in allowing a company to appraise its operating prowess. To record transactions, accounting personnel debit and credit financial accounts, such as assets, liabilities, equity capital, revenues and expenses. Accountants debit an asset or expense account to increase its balance and credit the account to reduce its amount. The reverse is true for a revenue, equity or liability account.
Accounting provides a sound operational management strategy that top leadership relies on to justify its decisions. For example, senior executives may point to negative accounting results to support large, painful budget cuts that are often inevitable in nonperforming, stagnant business units. Financial accounting also enables a company to publish specific data summaries, such as a balance sheet, income statement, retained earnings report and statement of cash flows.
The American Heritage Dictionary of the English Language defines finance as the science of the management of money and other assets. In other words, financial processes focus on how to increase the investments of individuals and organizations. In the corporate setting, department heads rely on financial strategies to implement the tactical steps necessary to win the economic competition. A corporate financial strategy defines a broad plan of action to ease a firm’s route to economic success. Tactics detail step-by-step, specific procedures that segment chiefs must deploy to make this success a reality.
Finance plays a central role in the business environment, indicating how corporate managers show skill at capitalizing on moments of economic prosperity. Various groups combine their resources and expertise to make financial mechanisms work. Individual depositors provide cash, the financial firepower that lenders use to support companies that need operating funds. These firms also can seek cash by going directly to securities exchange players, selling shares of equity and debt to investors. In addition to financial institutions, securities exchange participants include traders, portfolio managers and individual investors.
Finance is distinct from accounting although both concepts connect strongly in the modern day business environment. Accountants and bookkeepers transform operating transactions and memoranda into data summaries, the analytical basis that financial professionals rely on to gauge various operating items. These include a company’s liquidity movements, solvency and profitability.
The U.S. Bureau of Labor Statistics reports that a bachelor’s degree is the norm for entry into an accounting or finance occupation. Closely related fields, these two disciplines often require a uniform set of skills, such as analytical dexterity, attention to detail and effective communication.