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The Basics of Finance, Accounting, and Beyond
University of Phoenix
Americans constantly face the world of finance and accounting. Newspaper headlines,
radio reports, evening television news-magazines, the internet, and even co-workers
provide regular streams of information and opinions on money and the effect on the
economy. There is always confusion as to what finance and accounting means exactly.
Many people believe both these words have an identical definition. Some become
frightened at the thought of the terms. The terms are easy to comprehend, once clearly
defined, however. Although interrelated, finance and accounting mean different things. As
a manager of any organization, one must realize the importance of knowing what the
differences are.
Interestingly, the field of accounting has existed much longer than the field of finance.
Accounting is the process of identifying, measuring, and communication economic
information about an organization for the purpose of making decisions and informed
judgment (Marshall, 2003). A key product of an accounting system is the set of financial
statements. Providing financial data through income statements, balance sheets, and the
statement of cash flow is the ultimate product from accounting information. The income
statement provides detailed information of both the revenues and expenses for the
organization while the balance sheet provides a cash balance at a given point in time. Then
the statement of cash flow provides detailed accounts of how the company is spending its
money. This practice also equates to cash activity.
Finance consists of three main interrelated areas. A money and capital market, which deals
with macroeconomics topics, is the first area of finance. Money and capital markets
include all institutions or organizations that are involved in the financial intermediation
between savors (those who have surplus money) and borrowers (those who have deficit of
funds). These markets include banks, insurance companies, stock markets, and brokerage
and dealers firms, just to name a few.
Finance also focuses on the investment of individuals and organizations as they choose
securities for their investment portfolios, personal or otherwise. The investments involve
deciding where to make ventures from individuals or companies. There is the formation of
providing an option of mixed securities or other investments. Stocks, bonds, or a
combination of both within mutual funds is common within portfolios.
Managerial finance is yet another area of finance. This sect involves the actual
management of an organization. Managerial finance also involves the process of analyzing
the performance of an organization to make future decisions that will affect the
