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What Is the Relationship between Business Finance and Accounting?

Article Details
  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 25 November 2017
  • Copyright Protected:
    2003-2017
    Conjecture Corporation
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Business finance and accounting are two closely related activities in a company. Business finance — also called corporate finance — includes activities that help a company fund its activities and operations. Accounting is the process of recording and reporting financial figures from business transactions. The relationship between business finance and accounting exists because the former activity often uses figures from the latter. In other cases, business finance analysts review accounting information to determine the efficiency and effectiveness of operations.

A company often separates its finance and accounting functions among several workers. This ensures the company has the proper segregation of duties to prevent employees from manipulating information. The company also needs to create specific job responsibilities to further define roles. Large companies may also need to have two separate departments in order to process their financial data. In many cases, the finance department will have fewer employees than the accounting department.

Financial statements are typically the final output from a company’s accounting department. These statements present a record for a specific period in a company’s life. Business finance and accounting personnel work together to present the financial statements to upper management. For example, business finance personnel may review and make suggestions on correcting the financial statements. Business finance personnel may also create ratios in addition to statements to provide additional insight into the data.

Another relationship between business finance and accounting is the creation of a company’s budget or working capital analysis. Finance personnel often create budgets to present the expected financial outlays in the future. Accountants prepare information at the end of each month that affects current budgets. Finance personnel ensure the company maintains its budget and all figures are in proper accounts. Creating new budgets also requires the use of current accounting information.

Working capital analysis and other uses of accounting information also extend the relationship between business finance and accounting. Finance personnel must ensure the company has enough cash to operate. A mix of debt or equity financing is often necessary to overcome any cash shortfalls as computed by a working capital or cash budget. Without accounting information, these budgets and the related shortfalls are nearly impossible to determine. Finance personnel can also make other recommendations for working capital adjustments.

Other possible decisions that result from corporate finance include business valuation, investment decisions, and dividend planning. These decisions are all a working part of the relationship between business finance and accounting. Companies can also create other relationships based on their need for financial data.

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