Accounting? The Field of Finance Largely Concerns

¶ … accounting?

The field of finance largely concerns itself with investment analysis and the management of funds. The fields of accounting and finance are distinct from each other. Essentially, finance, from the occupational perspective, has largely got to do with the efficient procurement and utilization of funds. On the other hand, still from an occupational perspective, accounting largely concerns itself with the examination and analysis of financial data, and preparation of financial statements. It should, however, be noted that the roles of both professions do in some cases overlap. Indeed, accounting according to Khan and Jain (p. 1.5) should be viewed as a finance sub-function.

In a typical corporation the finance function is divided into two divisions, or departments. What are they? What does each department do?

The finance function is typically divided into the financial accounting and management accounting divisions. Management accounting in the words of Drury (2006, p. 7) "is concerned with the provision of information to people within the organization to help them make better decisions and improve the efficiency and effectiveness of existing operations." On the other hand, financial accounting as the author further points out "is concerned with the provision of information to external parties outside the organization" (Drury, 2006, p. 7). Parties outside the organization include investors and the relevant government agencies.

3. What are the three forms of business generally encountered in the U.S. What are the main defining characteristics of each?

The three forms of business generally encountered in the U.S. are: sole proprietorships, corporations, and partnerships (Gitman, 2007). Essentially, a sole proprietorship is managed and operated by a sole owner. In this case, the said owner bears all the risks and liabilities for the entire entity. A corporation on the other hand "is a 'legal person' composed of one or more actual individuals or legal entities" (Moyer, McGuigan, Rao, and Kretlow, 2011, p. 17). The 'legal person' inclusion in the sentence above is indicative of the separate nature of the entity from its owners. Next, we have a partnership which is essentially an arrangement where two individuals (or more) join forces and establish a business.

4. What is the basic financial goal of a business?

According to Drury (2006) there has been much controversy over what exactly should be the goal of a business enterprise. The most common viewpoint, however, is that the basic financial goal of any business entity is, or ought to be, profit maximization. Those in support of this viewpoint are of the opinion that maximizing profits is of great relevance when it comes to the enhancement of the "overall economic welfare" (Drury, 2006, p. 8).

5. In the context of a corporation seeking to maximize the wealth of its owners, how is "wealth" defined?

Wealth could, in this case, be defined in two ways: in terms of the stock price of the corporation's shares, and in terms of dividend payments made to shareholders on a periodic basis.