If there’s one topic that frequently confuses people it’s the difference between accounting and finance. However, when you compare accounting and finance degrees you can easily see that one is concerned with historical financial data and its use in decision making while the other is focused on money and investing.
You can think of accounting and finance as the yin and yang of business! One looks back and one looks forward. In certain areas, they overlap and complement one another.
The Difference Between History and Forecasting
The disparity between accounting and finance can be summed up in the following way:
- Accounting is the organization, systemization, and analysis of existing financial information.
- Finance is the management and investment of money.
Accounting is concerned with recording and managing financial information related to business operations. For example, an accountant might work with accounts receivable, accounts payable, general ledgers, financial statements, and payroll.
Accounting looks backward at what has taken place and reports it using accepted accounting principles. Those reports and statements are then used for decision making, guiding leaders when deciding how many new employees to hire, whether or not to cut back on production, etc.
Finance, on the other hand, is concerned with current money management. Finance professionals are involved in managing cash and cash equivalents to ensure that businesses have enough operating capital. Additionally, finance managers see to the productivity of investments. The focus is on macroeconomics and a number of mathematical formulas, like present value and future value.
The Common Denominator: How Much?
Both accounting and finance professionals ask “how much?” on a daily basis. The difference between them lies in what they are referring to.
- Accountants ask questions like, “How much did we spend last quarter on marketing?” or “How much is the equipment inventory worth?”
- Finance managers will ask, “How much will it cost in interest and fees to pay for a loan needed for a planned capital expansion?” or “How much should be invested in equities versus money market funds given current market rates?”
The difference lies in perspective. While accountants are looking backward, determining how history can improve a company’s past, finance professionals are living in the moment.
Meeting in the Middle
Accounting and finance are not entirely separate disciplines. Accountants use historical data to establish future budgets and make informed decisions concerning upcoming financial management. Additionally, accountants use financial formulas to make entries reflecting future activities, like interest accruals. They may also use historical information to make future financial decisions.
Finance managers must rely on historical accounting data to determine how much is available to invest without treading on the capital necessary to cover operational expenses. Because the two disciplines are interrelated, some people choose to earn a double major, resulting in an accounting and finance degree. This allows them to take a variety of courses during their educational experience.
- Accounting courses cover topics like financial statements and microeconomics.
- Finance courses cover topics such as banking and investments.
An undergraduate degree in accounting or finance means that you are prepared to begin a great career. Both degrees offer many job options. Consider the following:
- Accounting majors may choose to focus on cost accounting, financial accounting, forensic accounting, public accounting, auditing, or government accounting, to name just a few available jobs.
- Finance majors can choose careers in personal financial planning, corporate finance, banking, securities trading, and investment management, among many more.
No matter which relevant job you pursue, accounting and finance degrees will prepare you for a fast-paced, exciting, and rewarding career.