In our High Impact Online Program\u00a0Financial Decision Making for Managers<\/strong><\/a>, you’re going to see concepts from both the disciplines of Accounting and Corporate Finance. Shouldn’t you want to keep straight what comes from what? While in a traditional business school setting, finance and accounting get taught in separate subjects, they both play <\/span>vital roles in understanding how companies make decisions and continue operating.<\/strong><\/p>\n <\/p>\n Investopedia<\/b>, one of the best sources for information related to accounting and finance, <\/span>defines accounting as<\/b><\/a> \u201c\u2026<\/span>the systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities<\/span>.\u201d <\/span><\/p>\n <\/p>\n Did we mention that there are many types of accounting?<\/span><\/i><\/p>\n <\/p>\n But don’t worry, here’s how to break it down.<\/span><\/p>\n <\/p>\n Financial Accounting, according to our friends at <\/span>Investopedia<\/b><\/a> \u201c\u2026is <\/span>the process of recording, summarizing and reporting the myriad of transactions resulting from business operations over a period of time.\u201d Financial Accounting concepts covered in Financial Decision Making for Managers<\/strong><\/a>\u00a0include balance sheets, cash flow statements, and income statements. <\/span><\/p>\n <\/p>\n As the headline explicitly mentions, the purpose of financial accounting is for people outside the company. And <\/span>the rules of this accounting depends on the requirements where the business operates<\/b><\/a>, better known as the regulatory and reporting requirements. This is especially important for public companies<\/strong>, which are companies listed on the stock market<\/strong>. Every country has its requirements for how public companies need to report this information. Using standards keeps the info the same for all parties<\/strong> (whether it be creditors, regulators, tax authorities in a respective country and, of course, the investors buying stocks on the open exchange) that need to look at that information.<\/span><\/p>\n <\/p>\n In the United States, public companies must report using a system called <\/span>GAAP<\/b><\/a> (Generally Accepted Accounting Principles), while international public countries use IFRS (International Financial Reporting Standards). While you won’t carefully examine the difference between these standards in the course, this could account for differences you might see in how Apple<\/strong><\/a>\u00a0reports its numbers compared to Mercadona<\/strong><\/a>. This is because <\/span>Spanish public corporations are required to use IFRS standards<\/b><\/a> while US public companies must file with the US Securities and Exchange Commission (SEC) using GAAP standards, while <\/span>a new set of GAAP standards will come into effect at the beginning of 2018<\/b><\/a>. \u00a0<\/span><\/p>\n <\/p>\n The last difference to look at is between accrual accounting and cash accounting<\/strong>. While cash accounting only reports transactions when real cash gets exchanged, accrual accounting has the accountants record a transaction when it happens, and both parties recognize that revenue comes in (even if it means that the cash won’t come until much later). People can choose to use just one, or even a combination of the other.<\/span><\/p>\n <\/p>\n This <\/span>type of accounting<\/b><\/a> \u201c\u2026is the process of identifying, measuring, analyzing, interpreting and communicating information for the pursuit of an organization’s goals.<\/span>” You may sometimes hear this discipline also be called cost accounting<\/strong>. In this area of accounting, your focus is squarely on <\/span>using<\/b><\/a> \u201c<\/span>\u2026information relating to the costs of products or services purchased by the company.\u201d Budgets are also instrumental in cost accounting because management accounting <\/span>prepares performance reports to highlight deviations between real results and the previously developed budgets<\/b><\/a>. Some of the <\/span>other factors<\/b><\/a> examined in this discipline include the prices set for goods and services, forecasting, constraint analysis, and marginal analysis. <\/span><\/p>\n <\/p>\n First things first, there are three categories of finance that typically get mentioned: public finance, personal finance, and <\/span>corporate finance<\/b>. For Embedding Finance in Everyday Decision Making, we want to focus on corporate finance. <\/span><\/p>\n <\/p>\n As the name implies, <\/span>corporate finance is all about the financial activities related to running a company. <\/b>What does this mean? According to our friends at <\/span>Investopedia<\/b><\/a>, \u201c[<\/span>c]orporate finance is primarily concerned with maximizing\u00a0<\/span>shareholder value<\/span>\u00a0through long-term and short-term financial planning and the implementation of various strategies.\u201d <\/span><\/p>\n <\/p>\n What\u2019s part of this umbrella?<\/span><\/i><\/p>\n First, you have capital investments, which are critical. Deciding which capital investments your company will make <\/span>happens<\/b><\/a> \u201c<\/span>[t]hrough capital budgeting, a company identifies capital expenditures, estimates future cash flows from proposed capital projects, compares planned investments with potential proceeds, and decides which projects to include in its capital budget<\/span>.\u201d<\/span><\/p>\n <\/p>\n Then there\u2019s also capital financing. To make capital investments, you need fundin<\/strong>g. There are two ways to make it happen: debt or equity<\/strong>. That, in fact, is the <\/span>spirit of capital financing<\/b><\/a>. \u201c<\/span>Capital financing is a balancing act in terms of deciding on the relative amounts or weights between debt and equity. Having too much debt may increase default risk, and relying heavily on equity can dilute earnings and value for early investors. In the end, capital financing must provide the capital needed to implement capital investments.<\/span>\u201d <\/span><\/p>\n <\/p>\n The other feature of corporate finance is the idea of <\/span>short-term liquidity<\/b><\/a>, with the underlying objective being that you have enough of it to keep operating. What does this mean? Investopedia <\/span>states that<\/b><\/a> \u201c<\/span>[s]hort-term financial management concerns exclusively current assets and current liabilities, or working capital and operating cash flows. A company must be able to meet all its current liability obligations when due.\u201d<\/span><\/p>\n <\/p>\n What are corporate finance concepts covered in Embedding Finance in Everyday Decision Making?<\/span><\/i><\/p>\n They include WACC (weighted average cost of capital), net present value, and CAPM (the Capital Asset Pricing Model). <\/span><\/p>\n <\/p>\n To make the right decisions, you must use both accounting and corporate finance concepts to meet your operating goals while remaining financially sound.<\/span><\/p>\n <\/p>\n If you\u2019re eager for more things finance, click here to download your copy of our informational <\/span>brochure<\/b><\/a>. If you’re already set to embed financial knowledge with us, go ahead and <\/span>get started on your application right now<\/b><\/a>. <\/span><\/p>\n","protected":false},"excerpt":{"rendered":" Why go into this argument? In our High Impact Online Program\u00a0Financial Decision Making for Managers, you’re going to see concepts from both the disciplines of Accounting [\u2026]<\/span><\/p>\n","protected":false},"author":2,"featured_media":7519,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[386],"tags":[138,137,135,144,43,109,44,145],"_links":{"self":[{"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/posts\/7426"}],"collection":[{"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/comments?post=7426"}],"version-history":[{"count":6,"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/posts\/7426\/revisions"}],"predecessor-version":[{"id":8367,"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/posts\/7426\/revisions\/8367"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/media\/7519"}],"wp:attachment":[{"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/media?parent=7426"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/categories?post=7426"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ie.edu\/lifelong-learning\/blog\/wp-json\/wp\/v2\/tags?post=7426"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Accounting<\/h4>\n
Financial Accounting: For people outside the company<\/h4>\n
Managerial Accounting<\/h4>\n
Finance<\/h4>\n
Corporate Finance<\/h4>\n
The moral of the story?<\/h4>\n
How can I join in on the action?<\/h5>\n