Differentiate Between Financial Management And Financial Accounting?
Though financial management and financial accounting are closely related, still they differ in the treatment of funds and also with regards to decision - making. Treatment of Funds: In accounting, the measurement of funds is based on the accrual principle. The accrual based accounting data do not reflect fully the financial conditions of the organization. An organization which has earned profit (sales less expenses) may said to be profitable in the accounting sense but it may not be able to meet its current obligations due to shortage of liquidity as a result of say, uncollectble receivables. Whereas, the treatment of funds, in financial management is based on cash flows.The revenues are recognized only when cash is actually received (i.e. cash inflow) and expenses are recognized on actual payment (i.e. cash outflow). Thus, cash flow based returns help financial managers to avoid insolvency and achieve desired financial goals. Decision-making: The chief focus of an accountant is to collect data and present the data while the financial manager’s primary responsibility relates to financial planning, controlling and decision- making. Thus, in a way it can be stated that financial management begins where financial accounting ends.
