Accounting and Finance function

Accounting and Finance are the two different aspects of business that harmoniously work to keep the
business going. They are very much related in a symbiotic relationship, but they are not the same.
Accounting is the art of recording, classifying and summarizing in a significant manner. It is the whole
process that will answer the what, where and how of the business in terms of money. The significant
summary of accounting information is called Financial Statements. Financial statements present the
financial standing of a company. The interpretation of these financial statements is what correlates
accounting and finance. The function of Finance department is to summarize financial activity in your
business in the profit and loss statement, balance sheet and cash flow statement. In a business, the
finance function involves the acquiring and utilization of funds necessary for efficient operations.
Accounting records and bookkeeping are the basis of financial accounting. Interested parties such as
regulators, customers, investors and creditors often require financial information. Financial accounting
can be used to analyze significant aspects of your business such as monthly sales. Financial accounting
can produce financial information in a manner that makes interpreting business performance easy. As a
business owner, you can use financial accounting to develop ratio analysis. It helps you formulate your
future course of action or strategy.

Functions of Accounting:

1. Planning: Accounting helps managers in planning by providing reports which estimate the
effects of alternative actions on an enterprise’s ability to achieve desired goals.
2. Organizing: Organizing is a process of establishing an organizational framework and assigning
responsibility to people working in an organization for achieving business goals and objectives. It
requires clarity about each manager’s responsibility with lines of authority. Accounting helps
managers in organizing by providing reports and necessary information to regulate and adjust
operations and activities.
3. Controlling: Controlling is the process of monitoring, measuring, evaluating and correcting
actual results to ensure that a business enterprise’s goals and plans are achieved. It is
accomplished with the use of feedback. It also helps planning future activities of an enterprise
and controlling its day-to-day operations. This function is done mainly to promote maximum
operational efficiency.
4. Decision-making: Decision-making is a process of choosing among competing alternatives. It is
inherent in each of three management functions described above, namely, planning, organizing
and controlling. A manager cannot plan without making decisions and has to choose among
competing objectives and methods to carry out the chosen objectives.

Objectives of Finance functions:

1. Investment decisions: Investment decisions relate to selection of assets in which funds are to be
invested by the firm. Investment decisions allocate and ration the resources among the
competing investment alternatives or opportunities. It relates to the total amount of assets to
be held and their composition in the form of fixed and current assets. Here, the finance manager
 decides where to put the company funds. Investment decisions relate to management of
working capital, capital budgeting decisions, management of mergers, buying or leasing of
assets. Investment decisions should create revenue, profits and save costs.
2. Dividend decisions: These are decisions as to how much, how frequent and in what form to
return cash to owners. A balance between profits retained and the amount paid out as dividend
should be decided.
3. Liquidity decisions: Liquidity means that a firm has enough money to pay its bills when they are
due and have sufficient cash reserves to meet unforeseen emergencies. It is very important to
maintain a liquidity position of a firm to avoid insolvency. Liquidity decision is concerned with
the management of current assets. In order to maintain a tradeoff between profitability and
liquidity, it is important to invest sufficient funds in current assets. Current assets must be used
in times of liquidity problems and times of insolvency.