Discuss Your Understanding of the Terms ‘Accounting’ and ‘Finance’

This report will discuss my understanding of the terms ‘accounting’ and ‘finance’. According to Wood and Sangster (2007) the definition of accounting is:
‘Identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information’ (Wood & Sangster 2008 p.3)
McLaney & Atrill (2010) state that:
‘Finance (or financial management), like accounting exists to help decision makers. It is concerned with the ways in which funds for a business are raised and invested. This lies at the heart of what a business is about’ (Mclaney & Atrill, 2010, p. 2)
The discussion will focus on looking at the key words in the definition of accounting and the principles of financial management, to demonstrate my understanding of the topic and related issues. I will go on to analyse the information and critically evaluate the evidence. Throughout the report I will highlight what should guide those who work in these areas.
Identified & measured
Accounting involves identifying and recording transactions, organising the information involved and presenting it in a useful way for decision making (Wood & Sangster, 2008). Double entry bookkeeping records accounting or economic information in ledger accounts. Weetman (2006) says:
‘the double entry system of bookkeeping assigns to each aspect of a business transaction, a debit or a credit notation, based on the analysis of the transaction using the accounting equation’ (Weetman, 2006, p.47)
For every transaction there are three elements; assets, liabilities or capital, each one will show an increase or decrease. Large companies may subdivide their ledgers accounts to meet the needs of the users of the information.
The measurement of information involves making judgements about the value of assets owned, amounts owed to others and money invested. According to Wood & Sangster (2008):
‘The primary objective of accounting is to provide information for decision-making” (Wood &…

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