accounting-vs-finance-departmentMost of the small and mid-sized companies in Singapore today do not have a separate Finance and Accounting departments. Finance departments are made to perform 2 different jobs. First is to manage the company’s financial assets (finance) and second is to track and report the financial transactions of a business (accounting). Most of the large companies, however, establish different departments for finance and accounting which report to the Chief Financial Officer (CFO), separately. But what really differentiates finance from accounting? And how important is it for a company to separate them?

Finance Department

The task of a Finance department in a company revolves around a variety of capacities. Some companies assign it to supervise contract evaluation, auditing, hazard administration, capital investments and many more which improve the value of the business. They are mostly concerned with planning the distribution of the business’ assets. It is mostly managed by an executive; in some companies he is called treasurer and in some, vice president for finance. He is most likely to set the company’s financial goals and objectives. His/ her role includes financial analysis, management, and budgeting, purchasing, accounting, and bank to bank relations. He is the one to make sure the company has enough resources to compensate the salary of the employees, its payables and its investments.

The Finance department is expected to make strategic decisions on the company’s cash flow. They are the ones to ensure that there are enough funds to carry out the business’ day to day plans and payments. Their major role includes credit and collection policies, advising and sourcing longer term financing, mergers and acquisitions, prepare documents for venture capitalists or target investors, prepare company’s budgets and forecasts, and managing stock offers. An internal audit is usually placed in the hands of the Finance department so the organization is given the best options on selling stocks to the IPO (initial public offering).

Accounting Department

The accounting department is responsible for most of the administrative functions and is usually led by an accounting manager, comptroller or controller. Their accounting functions are important to maintain the proper operation of a business. They are responsible for recording and reporting the cash flows, in and out of the company. They help the company’s management to better comprehend the financial transactions of their company and the effects of those transactions to the revenue growth of their company.

Financial controls are an important aspect of an accounting department. The accountants are the financial backbone of a business. They keep the accounting software, process all the financial transactions, and record them into their company’s general ledger. In Singapore, they are recorded by Singaporean dollars and cents. Other than Singaporean currency, others also record other units of measure like their assets, how many company vehicles they own, and they also record the result of their inventory reports.

The Accountant is responsible for the company’s full set of accounts. They allow the management to access the information of the company’s financial transactions stored and recorded in the computer. From these records, they make reports for the company so that the management is able to understand accounts receivable, accounts payable, financial controls, financial reports as well as payrolls. It is with utmost importance that these reports are prepared for company managers since it will help them keep the company running. These financial reports prepared by the accountant/s make the manager understand the limits of their company’s financial status as well as how much they are able to gamble more to increase its revenue. It includes the understanding of a business’ past and present status which gives the manager a better edge on some critical financial issues. Some of these reports are not only for the information of the company’s management but also are made available for bankers, investors, government agencies and stockholders.

Accountants are tasked to prepare their financial reports (example, balance sheets and budgets) in a way that is easily comprehended by their company’s management. This is a huge advantage for a company since a complicated financial report is useless if it is not able to convey the message the company’s manager wants to understand. A readable and understandable report is critical since it is only through these financial reports that a business’ management bases his future decisions for their company. It is through these reports that give him proper view and information of the present status of their company’s finances. The dilemma usually happens when the accountant’s purpose for writing the report is for outsiders and not for the manager. These outsiders like the bankers, the stock analysts, investors and government regulators are given a glimpse of the company’s financial situation and a summary of the company’s monthly and quarterly operations. This is the reason why some managers often think of the computerized financial reports created by their company’s accounting program as technical, irrelevant and useless. These reports are only made credible and useful when accountants are able to present them in a standard, consistent and familiar format, easily understood by their managers.

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