Finance is a relatively broad term for things regarding the science, development, and measurement of financial assets and liabilities. In simple terms, finance is the art and science of managing financial resources with respect to their productive or potential returns. This includes the use of financial instruments such as loans, securities, and derivatives. It also includes a lot of governmental activities aimed at the public’s welfare through the utilization of financial resources. While it may sound complicated, it actually involves fairly simple processes.
In practical terms, finance is the process by which money is lent or extended to individuals, companies, the state, or the community in question. It usually results from some event or decision involving financial instruments. Financial economics traces its origins to the work of economists John Maynard Keynes and Alfred Nobel. They distinguished two types of economic activity: investment finance and consumption finance. Consumption finance is what we typically call economics when it comes to dealing with the supply side of a market economy; while investment finance refers to the part of the economy that uses money in the form of loans or securities to make investments with the hopes that they will yield a profit over time.
A major function of finance is in the production and allocation of the nation’s resources. Two distinct categories of financial activity are primary financial activity and secondary financial activity. Primary financial activity refers to the action of borrowing and spending the money created in the form of loans from banks and other creditors, creating a debt in the process. Secondary financial activity, on the other hand, is performed by various banking firms and by governmental entities such as the government, the central bank, or the central board of a nationalized bank system.
Accounting, on the other hand, is the process of receiving, organizing, recording, and reporting information about the events and processes of actual commerce, the results of transactions, and all other related information. The process of accounting draws on many different forms and fields of knowledge and expertise. In fact, there are many different areas of accounting that are related to different parts of business management and the economics of the economy. Some of the most common areas of accounting are bookkeeping, public accounting, economics, banking, and auditing.
Accounting is not just a boring name for a complicated process. It is an important part of any economy. For example, without sound financial metrics for deciding what the value of a stock is, how should banks decide whether to lend money, use a credit facility, or create a deposit? Without a sound accounting system, businesses would be unable to determine what their true costs are in making their operations and decisions. Also, without accounting systems, lenders and other creditors would be unable to determine if a borrower can repay his debts. Auditors, who determine the validity and accuracy of financial statements, are often an integral part of the various disciplines of accounting, as they provide an objective judgment about the validity and accuracy of financial data and systems.
This main article is intended to raise awareness of the various disciplines of accounting that are intimately connected with economic theory, business, government, personal finance, and behavioral finance. The main idea behind this article is that a business manager who takes accounting seriously can make sound financial decisions. The disciplines of accounting are crucial to the decision-making process of all businesses large and small. Therefore, it is important for business managers to understand these disciplines. If you have a business, consider hiring an accountant.