Relationship of Corporate Finance with Accounting

Finance is concerned with the acquisition and use of the firm’s financial resources. It is an integral part of the overall management. Therefore, it should be studied along with other disciplines. It is because finance derives heavily the conceptual and analytic foundations from other disciplines particularly from economics and accountancy.

Corporate finance is the area of finance handling the sources of funding and also the capital structure of corporations and also the actions that managers choose to use increase the value from the firm to the shareholders, as well since the tools and analysis used to allocate financial methods. The primary target of corporate finance is always to maximize or raise shareholder value.

Relationship of Corporate Finance with Accounting

The relationship between finance and accounting is quite close. Accounting is basically concerned with collecting, presenting and processing necessary financial data, whereas finance is concerned with decision-making. The financial manager, as per the requirements, recasts the statements prepared by accountants, generates additional data and makes decisions on subsequent analysis.

The finance and accounting functions are closely related and almost invariably fall within the domain of the chief financial officer. Given this affinity, it is not surprising that in popular perception finance and accounting are more often considered indistinguishable or at least substantially overlapping.

Accounting is concerned with scorekeeping, whereas finance is aimed at value maximizing. The primary aim of accounting is to measure the performance of the firm, assess its financial condition and find the base for tax payment.

Besides its direct relationship with accounting, finance is also related to other disciplines, such as mathematics production and quantitative techniques. In fact, it draws heavily on mathematics and quantitative techniques. The use of several quantitative and mathematical techniques have been extremely useful for solving complex financial problems of a firm.

The accountant prepares the accounting reports based on the accrual method recognizes revenues when the sale occurs (irrespective of whether cash is paid or not). Accounting deals primarily with the past. It records what has happened. Hence, it is characterized by a high degree of subjectivity.


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