Final answer:
The major difference between a finance system and an accounting system is that finance is concerned with the management and creation of wealth, forward-looking and focuses on planning future financial activities, whereas accounting is historical, capturing past financial transactions and focusing on the accurate presentation of financial health.
Step-by-step explanation:
Major Difference Between Finance and Accounting Systems
The major difference between a finance system and an accounting system lies in their primary functions and the type of decisions they inform. A finance system is focused on the management and creation of wealth and involves planning for the future, making investment decisions, and managing assets and liabilities. This includes strategies for savings and the financial systems, investing in the stock market, understanding investment strategies and financial assets, and dealing with bonds, stocks, mutual funds, as well as the concepts of risk and diversification.
In contrast, an accounting system is designed to record, summarize, analyze, and report financial transactions from the past. It deals with the accurate presentation of an entity's financial health and performance. Accounting profit, for example, considers explicit costs a firm incurs, whereas economic profit considers both explicit and implicit costs.
Simply put, finance is forward-looking, envisioning the financial future of a company and creating a roadmap to achieve financial goals, while accounting is historical, reflecting a company's past financial activities and ensuring compliance with reporting standards. Privately owned firms are connected to both these systems as they strive to earn profits, which is the difference between revenues and costs.