Accounting vs. Finance
Accounting and Finance as functions in an organization seem similar, but the role of each differs greatly. This article explores the similarities between the two as well as the differences when it comes to how they impact an org and how they look at financial statements.
Most accounting relies on what has happened to the business and how to categorize the different inflows and outflows.
For example - the P&L is an accounting statement that shows where your money comes in, and where your money goes out. The different types of transactions categorized by their own general ledger accounts. From an Accounting perspective, having detailed financial reports like the balance sheet, cash flow statement, and profit and loss - give a clear picture of what has happened at that company over time, and what the current financial picture is now.
Finance is everything that comes next. Where the accountant's job is to give a clear picture of what has happened, it is the role of finance to determine what should happen next and how those decisions will impact the future accounting statements.
To do this effectively from a financial standpoint requires building financial models, reports, and forecasts that go beyond traditional accounting statements. These differ from accounting statements in a few ways -
Forward-Looking – The finance function has to be forward-looking. This often takes the form of building financial models to develop forecasts to assess the impact of different decisions. Knowing how the decisions you make will impact the outlook of other parts of the business are critical to understanding the implications of any business decision.
Trend-oriented – Rather than looking at statements only month over month - often to understand business performance from a finance perspective it requires trend analysis. What are the growth rates of the underlying categories? How are the margins trending over time? Is there too much overhead to support certain product lines? These types of questions require analysis beyond a traditional P&L.
Categorizations – Sometimes it is helpful to categorize certain accounting line items in different ways or groupings for the purposes of your financial model. Maybe you want to group some of your salaries under COGS in your model because of the nature of the product. Or you want to group 4 of your GL accounts for all your travel expenses as 1 line. These types of modifications change the nature of the finance functions reports and financial models so that they are no longer a 1:1 with the accounting statements, even if they are using the same underlying data.
Action Oriented – The goal when analyzing reports should be understanding the WHY behind the numbers in order to present recommendations to the rest of your business. This is where the most value is added from the Finance function.
Unfortunately being action oriented tends to be where the least time is spent!
So much time right now is spent translating accounting statements into reports for finance that the Finance function doesn’t have time to focus to do what they do best! The biggest challenge we consistently hear is that doing the 1:1 translation from accounting statement to finance statement takes too much time and is prone to manual errors.
That’s where software like Genius Sheets come into play! With a flexible product like Genius Sheets you can easily convert your accounting statements and translate them into financial reports specifically designed to help you make better decisions.
You can spend less time copying and pasting accounting exports into financial models and more time helping companies improve their bottom line!
If you are interested – sign up for a free trial of Genius Sheets and learn how you can use our custom formulas to streamline your existing Excel and Google Sheets based reporting processes.