The employment of auditors and accountants is projected to grow 6% from 2019 to 2029, which is more than the average for all occupations. Similarly, the employment of financial analysts is projected to grow by 5% from 2019 to 2029. These growth rates indicate the increasing demand for finance and accounting professionals in today’s business landscape.
Finance and accounting are two critical fields that are often used interchangeably, but they have clear differences. Understanding the differences can help individuals and organizations make informed decisions about their financial management. In this blog, we will explore the differences between finance and accounting, and their importance in the business world.
Scope
Accounting is primarily focused on recording, classifying, and summarizing financial transactions and preparing financial statements, to provide accurate and reliable financial information to internal and external stakeholders for decision-making purposes.
On the other hand, finance is concerned with the management of money, assets, and investments, to maximize their value. It involves analyzing financial data, assessing risks and opportunities, and making strategic decisions that will improve a company’s financial performance and ensure its long-term success.
Timeframe
If you look for the keyword difference between finance vs accounting, you will see that their timeframes are different. While accounting is mainly concerned with presenting financial statements that show a company’s financial performance for a given period, finance focuses on the present and the future. Accounting records and summarizes past financial transactions, presenting financial statements that show how a company performed in the past. On the other hand, finance uses data to make decisions that will impact the company’s long-term success. It analyzes current and projected financial information to develop strategies for growth and profitability.
Methods
Accounting relies heavily on generally accepted accounting principles (GAAP) to prepare financial statements and ensure compliance with accounting regulations. For example, the GAAP requires companies to use the accrual method of accounting, which recognizes revenue and expenses when they are earned or incurred, rather than when they are received or paid. This method provides a more accurate picture of a company’s financial performance than the cash method, which records revenue and expenses only when cash changes hands.
In contrast, finance uses various analytical tools and techniques to evaluate investment opportunities, manage risk, and make financial decisions. For example, financial analysts may use discounted cash flow (DCF) analysis to estimate the value of an investment, or use scenario analysis to model the potential impact of different economic and market conditions on a company’s financial performance.
Standards
Accounting and finance standards play a pivotal role in shaping the financial reporting landscape, ensuring transparency and consistency across industries and markets. One such significant standard is ASC 842 lease accounting, which has had a profound impact on how companies account for leases. ASC 842, issued by the Financial Accounting Standards Board (FASB), introduced new guidelines that require lessees to recognize lease assets and liabilities on their balance sheets, fundamentally changing the way leases are reported. This standard aims to provide a more accurate representation of a company’s financial position by bringing off-balance sheet leases onto the balance sheet, enhancing financial statement users’ understanding of a company’s lease-related commitments.
In addition to ASC 842, there are numerous other accounting and finance standards that govern various aspects of financial reporting. International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB), are globally recognized and widely used, particularly in countries outside of the United States. These standards ensure consistency in financial reporting for companies operating in diverse regions. Moreover, the Generally Accepted Accounting Principles (GAAP) in the United States encompass a vast array of standards, including the Revenue Recognition Standard (ASC 606) and the Current Expected Credit Loss (CECL) model for estimating credit losses, each addressing specific financial reporting challenges.
These standards collectively provide a framework that fosters comparability and reliability in financial reporting, ultimately aiding investors, creditors, and stakeholders in making informed decisions and assessing the financial health and performance of businesses. Staying current with these standards is imperative for financial professionals to ensure compliance and accurate financial reporting in a constantly evolving business environment.
Career Paths
Accounting offers a wide range of career paths such as:
- Financial accounting focuses on the preparation of financial statements and reporting to external stakeholders, such as investors and regulatory bodies. Its purpose is to provide accurate and relevant financial information to external users to help them make informed decisions about the organization.
- Management accounting, on the other hand, involves using financial data to make strategic decisions within an organization. Its purpose is to help management make informed decisions about the allocation of resources, cost control, and performance evaluation.
- Auditing involves reviewing financial statements to ensure compliance with accounting regulations and internal policies. Its purpose is to provide assurance to stakeholders that the financial statements are accurate and reliable.
In contrast, finance offers a different set of career paths, including:
- Investment banking involves providing financial advice and services to clients, such as corporations, governments, and financial institutions. It can include advising on mergers and acquisitions, underwriting securities (i.e., facilitating the issuance of stocks or bonds), and managing assets such as private equity or hedge funds. Investment bankers typically work with large sums of money and help clients raise capital, manage risks, and make strategic financial decisions.
- Corporate finance, on the other hand, focuses on managing a company’s own financial resources. It can include creating budgets, forecasting revenue and expenses, managing cash flow, and raising capital through equity or debt offerings. Corporate finance professionals often work within a company’s finance or accounting department and help ensure that the company is financially sound and sustainable.
- Financial analysis involves analyzing financial data to make investment decisions and manage portfolios. Financial analysts use a variety of tools and techniques to evaluate companies or investment opportunities, such as financial modeling, ratio analysis, and trend analysis. They also monitor market conditions and economic trends that may impact investments.
Skills Sets
Accounting requires strong attention to detail and a deep understanding of its principles and regulations. Accountants must be able to accurately store and classify financial transactions, reconcile accounts, and prepare financial statements. They must also be proficient in accounting software and have excellent organizational and time management skills to meet reporting deadlines.
On the other hand, finance professionals require analytical skills, strategic thinking, and knowledge of financial markets and investment strategies. Finance professionals also need to be skilled in financial modeling and analysis, as well as in communication and presentation skills to convey complex financial information to stakeholders.
Coursework
Accounting coursework typically includes classes in financial accounting, managerial accounting, auditing, taxation, and accounting information systems. These courses are designed to provide students with a strong foundation in accounting principles, financial reporting, and taxation. Accounting students learn how to prepare financial statements, analyze financial data, and comply with regulatory requirements.
On the other hand, finance coursework focuses on financial management, investments, financial markets, and corporate finance. Finance students learn about financial analysis, risk management, valuation, and capital budgeting. They also study financial instruments, such as stocks, bonds, and derivatives, and how they are traded in financial markets.
Salary Expectations
In general, finance professionals tend to earn higher salaries than accounting professionals. This is because they often work with larger amounts of money and are responsible for making important financial decisions that can have a significant impact on a company’s bottom line. Some of the highest-paying jobs in finance include investment bankers, hedge fund managers, and private equity professionals.
On the other hand, accounting professionals tend to earn slightly lower salaries, although there are still plenty of opportunities for high earners in this field. Some of the highest-paying jobs in accounting include certified public accountants (CPAs), auditors, and financial controllers.
Overall, the average salary for finance professionals is around $131,710 per year, while it’s around $77,250 per year for accounting professionals.
Conclusion
Finance and accounting are both crucial aspects of business management, but they differ in their scope and focus. Accounting primarily deals with recording, classifying, and summarizing financial transactions, while finance focuses on managing those financial resources to achieve the organization’s goals. Accounting is concerned with past events, while finance looks to the future and is more forward-thinking.
Both fields are essential for businesses to operate effectively, and understanding the differences between them can help individuals determine which area of expertise they want to pursue. Ultimately, a successful business requires a strong understanding of both finance and accounting, and collaboration between these two fields is crucial for achieving organizational success.
