Financial management and accounting: know the differences

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Accounting and financial management are essential areas for the growth and success of any business. Although they are closely interconnected and complement each other, so much so that they can sometimes be confused, accounting and financial management are two different activities. In this article, we explain these differences.


What is financial management?

Financial management is the area responsible for managing all of a company's financial resources, i.e., it deals with controlling monetary flows – effective inflows and outflows of capital – inherent to the company's activities, including receipts, payments, investments, financing, among others.


At the end of a financial year, a company may report a profit but not have the india whatsapp number database resources to follow the same trend, as the results are calculated without taking into account the respective monetary flows. Ultimately, the job of financial management is precisely to ensure that monetary flows have a positive result and that all of the company's commitments are met .


To this end, good financial management is an ongoing process and involves the manager always knowing the current situation of the company's treasury, so that he can not only proceed to correct situations of lack of liquidity, but also be able to estimate future developments.


In addition to the current state of the company's treasury, financial management allows this data and historical data to be used to project future scenarios, either to predict potential liquidity needs or to apply some liquidity to possible investments and understand their timing and profitability.


What is accounting?

While financial management essentially involves analyzing the present and future of businesses in terms of capital flows, accounting is based more on calculations based on historical data.


Accounting is the method by which all transactions that a company makes are classified into classes and recorded, based on the accounting standards in force (NCRF – Accounting and Financial Reporting Standards).


Accounting is about putting a company's economic and financial information into a common format, comparable and understandable to everyone, from the State to other companies, so that, unlike financial management, it is imposed by law on almost all businesses, requiring them to have a certified accountant .


All sales, purchase, expense and asset acquisition documents, as well as other income and expenses, are recorded by the accounting department, so that financial statements are generated at the end, showing the respective financial situation and results.


In addition to allowing the current status of the company to be assessed so that informed decisions can be made, accounting is the basis for complying with tax obligations, and it is based on its tables that the taxes to be paid are calculated .


Differences between financial management and accounting

Some of the differences between financial management and accounting will already be clear from their definitions.


One of them is the fact that accounting works based on past facts, whereas financial management focuses on current data in order to project the future.


Furthermore, in terms of skills, financial management is not a legal requirement and is generally carried out internally by companies. Accounting is not only mandatory for most businesses, but also has standard rules and formats that must be followed, and a certified accountant must be responsible for ensuring that these are properly followed.


Financial management also differs from accounting in terms of the objectives of each:

financial management is the control of the allocation of financial resources in order to ensure that correct decisions are made regarding the company's capital;

The purpose of accounting is to record all information and generate reports in a standardized format and with reliable information about the company's financial situation for various audiences.


In relation to the target audiences, financial management meets information needs and assists internal decisions, while accounting, as already mentioned, generates information not only for internal decision-making, but also for the public and authorities.



How to reconcile financial management with accounting

As mentioned above, financial management and accounting are different areas, but interconnected and complementary, since financial management is based on accounting records, but accounting is insufficient as an isolated means of decision-making.


Accounting information may not follow the trend of the respective financial movements, which is why it is important that it is complemented by financial management. For example, a company may present a positive net result, but have liquidity needs, simply due to an imbalance between the receipt and payment terms.


A financial management department that ensures positive cash flows, with timely receipts to meet obligations and sufficient to ensure good financial health that fosters growth needs, is essential to complement the accounting department.