Finance and Accounting: What’s the Difference?
- Job Description
- Tools Used
Finance and accounting are two different career options. Because they both work with money and in business, some people assume they are two versions of the same profession. In general, accounting has a much narrower focus than finance and fewer diversities in career options. Here are five differences between the two professions.
The first and most basic difference between accounting and finance is in their job descriptions. Accountants look at the finances of a person or organization to identify and classify trends. They interpret financial data and create systematic and standardized reports on different aspects of it. That is important because the reports are used by different entities. Finance professionals use some of the same data, but their ultimate goal is not to record it but to use it to predict future behavior. Finance is the science of investing and spending.
Accountants use balance sheets, cash flow statements, income statements, financial statement analysis, fund flow analysis and other data to give a picture of an individual’s or organization’s financial health. Finance professionals use ratio and risk analysis, capital budgeting and leverage to build capital. They also use daily financial reporting from news and social media.
Accounting is broken into several specializations. Accountants may work in financial accounting, cost accounting or managerial accounting. Financial accounting is the collection and organization of data that gives an overall picture of the financial health of an individual or organization. Like an annual physical exam, it uses accepted standards or benchmarks in many different areas to arrive at that assessment. Cost accounting is the study of financial data related to the cost of making a product. Management accounting is the use of financial records to study the effectiveness of managerial decisions on the company.
Finance specializations include managerial finance, personal finance and corporate finance. Like managerial accounting, managerial finance studies the impact of managerial decisions, but it goes further in that it seeks to remedy a negative impact. Individual finance deals with helping people to build and maintain wealth.
Accounting is based on current data, interpretation and reporting and works with known factors. Finance is future-based. It uses current data, along with market analysis and risk factors to invest capital. In effect, it is gambling on future economic trends. Professionals in finance, however, have a strong understanding of the things that affect upward and downward movements in the economy and that minimizes the risk.
Accountants usually work in business, for government entities or in private firms. They may specialize in forensic accounting that investigates criminal financial behavior, public accounting, auditing, taxation, or several off-shoot careers. Finance professionals may work for huge investment banks, corporations, in equity research, in project management or other aspects of corporate business. According to the U.S. Bureau of Labor Statistics, the median salary for accountants is $70,500 while the median salary for financial analysts is $85,660.
Both professions are seeing an increase in the use of artificial intelligence to eliminate error and streamline processes. Both finance and accounting increasingly rely on software programs to help them stay in compliance with complicated regulations. While accountants and financial professionals have much in common, most companies need both to ensure their financial wellbeing.
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