The aim of this report is to define the terms ‘accounting’ and ‘finance’. Also it will show how accounting and finance integrate together. Furthermore, there will be a literature review arguing the available evidence on the relative topic of the report. Additionally, it will account on why they are considered important for business with the appropriate evidences. Finally, the conclusion shall be reached summarising the arguments. The conclusion will also discuss any limitations and also recommendations for future research on this topic.
The American Accounting Association defines accounting as, “the process of indentifying, measuring, and communicating economic information to permit informed judgements and decisions by users of that information”. In other words, accounting is the process of recording, summarizing and communicating to different users of the information of both internal and external as depicted by Wood and Sangster. Furthermore accounting reports are prepared following a set of rules and regulations such as the Generally Accepted Accounting Principle (GAAP) to ensure uniformity, relevance and reduce the degree of complexity in companies as demonstrated by Wood and Sangster (2008, p.104-109).
Users of accounting information
There are a lot of users of accounting information. Alexander and Nobes (2010, p.4) gives us a lot of examples of people who might use accounting information. For instance, managers may need to know the financial status of a business; owners of the business. They need to know whether their business is profitable; creditors, they need this kind of information to assure themselves that there is no risk of not being paid what they are due. Other users of accounting information are investors, employees, suppliers, customers, prospective buyers, prospective partners, tax inspectors. However, for accounting to be useful the information has to be relevant and timely, reliable and complete, understandable and last but not least comparable. Also the information on financial position, performance and cash flow statements must meet the accounting standards as suggested by Wood and Sangster (2008, p.113).
Finance is the branch of economics that focuses on investment in real and financial assets and their management. It involves making wise investment decisions on the basis of financial reports as shown by Kolb and Rodriguez (1992, p.3). Also, finance is centred on two primary elements, of time and risk. Thus future cash flows are affected by current decisions leading to uncertainty as verified by Harold Bierman (2010, p. 3-4). Moreover, the author John J. Hampton (1983, p.5) suggest that finance retrieve accounting systems to make decisions that would help businesses achieve their objectives such as: maximizing of shareholders wealth, minimise risk, achieve flexibility and maintain control. Furthermore, he shows that finance is concerned with actual flows of money, as well as any claims against it.
Accounting and Finance
Accounting and finance are two distinct business disciplines. However, they depend on each other in order to permit an efficient and effective decision in organisations as described by John J. Hampton (1983, p.5). Also the author Harold Bierman(2010, p. 3), portrays the influence of financial reports like: income statements, balance sheets and cash flows for daily managerial decisions such as: administrating and determining credit policy from current assets, make capital budgeting decisions from non-current assets and advise on debts and preferred stock from liabilities and equity. Therefore, the two disciplines will work as partners to control business.
Authors such as Michael Jones, Wood and Sangster have portrayed that accounting and finance play a significant role in businesses, where financial reports will...