What is the difference between finance, banking, commerce, economics, auditing, accounting - Best Answer

Ali Muhammad Usmani, M.A (Economics and Finance), MBA (Marketing). Advisor cum Director Hafiz Textile Mills Ltd.

 

All of these field having individual identity. Although they suppport other fields, but having their own importance.
For better understanding or differentiation, one would try to understand the definitions of these fields.

FINANCE ::
It is a process of wealth management.. in simple words... before starting any business, one would plan where and how to invest money for better return, for which there are some tools available to analyse the project before going head like NET PRESENT VALUE (NPV), RATIO ANALYSIS, PRESENT AND FUTURE VALUE ANALYSIS, PAY BACK PERIOD, etc.


ACCOUNTING ::

Accounting is an art of recording business transactions. Word "ART" has been used because of in accounting there should be balance in both sides of entry, which accumulately make some sense in finalizing the position. ACCOUNTING comes after transaction has been done or expected to done in future, As we understand ther term finance, accounting needs to follow the business transactions in writing, which is helpful in analysing the financial decision made just before start of business, and helpful in amending (if any) financial decision for next year.


AUDITING ::

Investopedia expalins .....
An unbiased examination and evaluation of the financial statements of an organization. It can be done internally (by employees of the organization) or externally (by an outside firm).


BANKING ::
As per freedictionary.com.......
engaging in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credit etc.
Bank play an important role of intermediary mostly of cash handling between business to business B2B, business to client B2C, or any other sources. It also deposit and to lend on interest.


Economics ::

Adam Smith’s definition of Economics.Economics is the social science that studies the production, distribution and consumption of goods and services. The term economics comes from the Greek for “oikos” means house and “nomos” means custom or law, hence the term economics means “rules or laws o household”.

A definition that captures much of modern economics is that of Lionel Robbins in 1932 essay which states as “the science which studies human behaviour as a relationship between ends and scare means which have alternative uses.”



COMMERCE ::
Commerce is a branch of business . It is concerned with the exchange of goods and services. It includes all those activities, which directly or indirectly facilitate that exchange.
There is also perceived that term COMMERCE & BUSINESS are having same meaning, the difference is only of BRITISH & US english.

 

Alvin Moore, former Vice President JPMorgan Chase Said

 

Accounting is the language of business. There are many conventions which amount to various dialects depending on the intended audience /manner in which one is attempting to relay information. It is good to have a solid understanding of how to interpret financial statements. For this purpose, accounting is a very useful tool. Additionally, knowing how to categorize business language (otherwise known as managing the books) is essential for making sound business decisions and keeping with proper financial repoting to regulatory agencies.

Economics is the study of scarcity. The basic premise is that there are limited resources and unlimited wants in most any system which an individual, government, or firm may find themselves. Therefore, one must decide how best to allocate their limited resources to meet their needs among the competing options available. Consideration of opportunity costs associated with one decision versus another is a reoccurring theme in economics. This model may be applied across a wide swath of disciplines especially social science. There are Macro (big picture) and Micro (focused area) perspectives to be considered respectfully.

Finance is distinguished as a form of management of financial systems, implementation, and/ or study of money, banking, credit, investments, assets and liabilities, or even the creation of variations of money. One may study these financial instruments as well specifically focusing on public, private, or individual areas of interests. It is critical to have a basic foundation in finance as it will help contribute to you making intelligent investing decisions over the long-run. If you want to buy a house, invest, save, or know how much money your investments must grow compounding for you to have enough money in the bank every month as income after retirement, you must learn basic finance. Additionally, if you ever want to run a business or raise money to start a company this will prove to be a useful tool.

Accounting = Language of Business

(Using this we interpret numbers/ classify/ categorize)

Economics = Macro / Micro Market perspectives

(Using this we assess trends, needs, allocate resources)

Finance = Tools / Instruments to circulate money

(Using this we direct/ orchestrate monies into and out of various parts of our financial system)

Suryanarayanamurty Sornapudi, Ex Banker - Always tried to be a practical  Also Said

With my experience in the Banking sector, I can loosely / crudely explain them as under, as I understood, though this may not be the exact definition...there could be slight variation.

FINANCE: This deals with financing (Lending Funds/money) a project of Individuals or an organization with certain conditions on interest rate, period of repayment, margin money stipulations to be brought in by the Enterpreneur etc.

BANKING: This includes all the present day banks where they accept the deposits from public at a certain interest rate and lend those funds at a certain interst rate-- subject to certain guidelines stipulated by the Central Bank or RBI in India. Normally the interest rate on Loans will be more than the interest rate on deposits that being the Banks' margin / profit within which they have to cover all their operating expenses in addition to making provision for bad debts as per RBI norms from time to time. In view of the risks involved in getting back the lent money with interest, the NBFCs or the Non Banking Financial Companies are forbidden from taking deposits from the public; they may lend their owned funds.

COMMERCE: Commerce is nothing but trading or business that ncludes overseas business i.e. Exports and Imports. You sell your products - raw materials or Finished Products or Services - loading your margin to the cost of production. In India as of now E-Commerce (Online portals/ dot coms) is booming compared to the conventional brick and mortar model (i.e. setting up a shop physically) posing a threat to the retail outlets.

ECONOMICS : This is a subject in the category of ARTS. Economics prima facie deals with Land, Labour, Capital and Organization and their respective returns viz., Rent, Wages, Interest and Profit/Loss. It also deals with the Economy of the Country like the GDP, Prices, Inflation, Exports, Imports etc. Dynamics of low interst rate regime (lower the cost of funds, more the industrial development) and how they augment the industrial development of a country etc., are dealt here.

AUDITING: This is loosely like Inspection of what has been done in an Organisation with regard to how the accounts have been drawn, following the laid down norms scrupulously, compliance or otherwise etc. Depending upon the nature of activity or business, an Auditor (Chartered Accoutant) has to verify the level of compliance of norms, guidelines set by various Quasi, Non-quasi bodies of Government with regard to Accounts maintenance, Taxes and Interest payments, Compliance of Labour laws etc. Now a days Auditing is taking place in every segment including Software Industry/ ITeS where the people with CISA qualification are much in demand. It is famously said - Auditors are watch dogs but not blood hounds making it clear that they can only point out mistakes, but cannot punish.

ACCOUNTING: Good olden days there used to be signle entry system where if some income or expenditure item is omitted to be entered, it used to be difficult to trace the difference. Every Debit entry will have a Credit Entry and vice versa. With the current double entry system it becomes easy to trace such mistakes. Of the accounting system Tally is the most popular software across the country. This includes drawing of Trading Account ( for Manufacturing Units) P&L Accounts and finally Balance Sheets with knowledge of Corporate and Tax Laws of Limited Companies and Secretarial practices.

 

 

Banking works in the finances of a company. How much is it worth and how does it fund its operations?

Finance (in the company) manages the money of the company. Are we making enough and can we make more?

Commerce manages the sales of the company. How can we get more people to buy this item?

Accounting documents the operations of the company. How did our money move and where did it move to?

Audit verifies the operations of the company. Is what the company stated true and correct?

Economics analyzes the existence of the company. How does this company affect its competitors and the world around it, and why does it need to exist?

Sell side equity research analyzes the operations of the company. How well does this company function, how will it function in the future, and what is the effect on its price in the market? (Credit research is the same for debt)

Buy side equity research analyzes the price of the company for its fund. Is it worth more or less than its current valuation in the market? (Credit research is the same for debt)

Traders buy and sell the company. How can we get this stock for the cheapest price possible