Differences Between Finance and Accounting
The key difference between Finance and Accounting is that finance is the management of the money and the investment of different individuals, organizations and other entities, whereas, Accounting is the process of recording, maintaining as well as reporting the financial affairs of the company which shows the clear financial position of the company.
Many students think that finance and accounting stem from the same domain of expertise. But ask an accountant or a finance guy who has been working in a corporate for a long time, they would tell you how different they are in their nature, the scope of work and areas of expertise.
In this article, we will look at both of these domains and investigate how different they are. Yes, they’re related. And to be good in finance, you need to know the basic accounting. But that doesn’t mean both are the same things.
We discuss the following topics in this article –
We will give you examples and share some facts about both of these. Hang tight and read on. Let’s get started.
Finance vs Accounting Infographics
First, let’s understand finance and accounting from a high level. In layman’s language, finance is the science of planning the distribution of assets within the company. Accounting, on the other hand, is the art of summarizing, reporting and recording finance-related transactions. Now, let’s go deep and try to understand what finance and accounting are all about.
Finance Career Outlook
Finance can be divided into two main functions.
- The first is to ensure that the operation of the business is done properly. For that, the business needs to source funds.
- The second function of finance is how the funds would be distributed for the maximum return on investments for business once the funds are sourced.
But that’s not it. There are many more things in finance that finance executives and professionals have to pay heed to. For example, people who are involved in finding out which projects are best for clients to invest in, are performing financial analyses on a regular basis.
Many professionals are also engaged in valuing the companies and finding out which companies to buy for expansion. Finance is a complex domain and there are many sub-domains inherent within it. So you need to find out which sub-domain you like and choose to expand your career in the same sub-domain. You can go into corporate finance, project finance, investment analyses, equity research, financial analysis, valuation, risk management and so on and so forth.
Accounting Career Outlook
- On the other hand, accounting professionals get busy recording, reporting and summarizing the entire gamut of financial transactions through a journal, ledger, trial balance, balance sheet, cash-flows, income statement and so on and so forth.
- The main goal of an accountant is to represent the accurate financial picture of a company. On the basis of which the firm makes amendments and take care of the internal operations.
Take for example that you want to improve upon an area of your life. What would you do? You would start tracking the area you want to improve upon and record everything you do or don’t do. And then finally you come to the conclusion where you are in that area so that from there you can change your direction. The main purpose of accounting is similar. It’s important for a company to be profitable not only in reality but also in paper. By means of accounting, the company understands how much liabilities they have, how much assets they own, how much taxes they need to pay and how profitable the company is.
Qualification and Degrees
In finance, there are a hundred streams you can go into. Depending on your goal, here’s what you should do.
- First, complete your Bachelor’s degree in Finance or Accounting and then if you want to be in a managerial position in a big corporate, go for an MBA in Finance from a reputed institute.
- With an MBA degree in Finance, you can also go for Investment Banking, but in that case, you need to have the mettle for analyses and valuation also.
- Other than MBA, you can also go for core courses, like CFA, FRM, CQF, Actuary and so many other core domain courses. They are internationally recognized and if you really want to pursue a career in these core domains, having a certification will pave your way.
In the case of accounting, it’s more of a narrow path. But that doesn’t mean you can’t make your mark in this field.
- Accounting is the foundation of finance. Thus you can pursue a Bachelor’s degree in Accounting or Finance and then can choose to go in accounting instead of finance.
- The best two courses you should opt for are CA and CPA. Both are globally recognized and would add tremendous value to you as professionals.
|Definition||Finance is the science of planning the distribution of assets within the company.||Accounting, on the other hand, is the art of summarizing,
reporting and recording the finance-related transactions
|Career Options||Investment Banking,
|Forensic Accounting, Management Accounting, Public Accounting, financial accounting, Auditing, Government Accounting|
|Education||Bachelor in finance, accountancy, economics or mathematics; MBA,
CFA, FRM, PRM, CFP and more
|Bachelor in Accounting, Masters in Accounting, CA, CPA, ACCA, CIMA, CMA|
Goldman Sachs & Co
Bank of America Merrill Lynch
J.P.Morgan Chase & Co
|PwC (PricewaterhouseCoopers) LLP
Ernst & Young LLP(EY)
Grant Thornton LLP
BDO USA LLP
Crowe Horwath LLP
RSM US LLP
Moss Adams LLP
Baker Tilly Virchow Krause, LLP
|Work-Life Balance||It depends on which subdomain in Finance you are working for. Investment Banking – it is brutal! Equity Research is still OK. Buy-Side Analyst has a balanced work life.
Depending on the area, you may have to work for 10-18 hours a day
|Balanced – Much better than the Financial Analysts. Work is not urgent all the time of the year.|
|Travel||Mostly they are not required to travel much. You can safely assume that 90% of the time is spent in Office.||Not much of travel is required by economists|
|Key Words||Financial Modeling overview, Valuations, M&A, NPV, IRR||journal, ledger, trial balance, balance sheet, cash-flows, income statement|
|Exit Opportunities||Depending on the chosen area of interest, there are some amazing exit opportunities within the Finance sector.
For example, Investment Bankers moving into Private Equity, or a Research Sell-side analyst moving into a Buy-Side Analyst profile
|CFO, Managerial Positions, Corporate Finance|
|Networking Opportunities||Mostly work within the Financial Industry. The alumni network is strong but not varied as found in the Consulting.||Not much. Limited within the domain alumni network|
|Compensation||finance management professional earns around the US $84,800 per annum on an average||The median annual salary of an accountant is around the US $65,940 per annum.|
|Pros||Your options in this field are much more than any other profession. You just need to know your career goals and you can pursue any financial career accordingly.
The success in the finance domain mainly depends on technical skills and much lesser on personality traits.
|As an accountant, you can move to many different careers. You can work as an auditor or a tax consultant or you can choose to go for management accounting.
The best part of accounting is its work-life balance.
|Cons||The compensation in most of the finance professions doesn’t reach six-figure marks. Few do. If you want to get compensated well (above average), you need to work on yourself.
Work-life balance is dependent on the domain of work. But the work pressure always prevails.
|The domain is very narrow and rarely do you have an opportunity to specialize in something broader.|
Let’s look at the primary tasks of finance and then we will see the primary tasks of accounting.
Primary Tasks of Finance Professionals
You may have already understood that finance is a vast field and thus here we’re presenting the general functions of finance professionals. According to the core field, you’re in, you need to perform various actions over and above these functions below –
- One of the most important functions of finance is to source funds. For operating a business on a day-to-day basis and for producing products and services, organizations need to invest a huge amount in the research, in procuring the raw materials, in hiring the right human resources and in the processes which make the transition from raw materials to finished goods. So the organizations need to find ways to source funds from various sources. And finance professionals take the charge to source funds from various sources. They may go to financial institutions and ask for a loan or they can conduct IPO and gather the money from the public.
- Sourcing of funds is important. But the distribution of these funds is equally important. You need to know where to put money so that you can get maximum return on investment within a few years. The main motto of finance professionals would be the perpetuity of business. To ensure that they should invest money into building an organization’s core competency. Once the core competency is built, then the rest would be much easier to handle.
- Now let’s talk about the third most important function. Let’s say that the organization has already invested a ton of money into building their new product line. And it successfully attracted a lot of customers. As a result, the firm has made a huge profit. The question is what the firm would do with the profit! Would the firm reinvest into the business to improve its processes or the profit would be shared among shareholders? This is an important decision to make and this decision has to be made by finance professionals in the organization.
- The last but not the least part of the finance functions is communicating the decision made to the senior/top management professionals to get their nod. Many people say that finance professionals don’t need to be good at soft skills. But the truth is financial professionals need to be equally versed in spoken and written English as they need to create multiple reports and convey their decisions on investment, reinvestment, sharing profits, capital budgeting and many such important decisions to the top management.
Primary Tasks of Accounting Professionals
There are four most important functions which make accounting different than any other domain.
- In Finance, the idea is to the distribution of assets (current plus fixed) inappropriate manner. Accounting comes after that. It helps the organization measure the contributions of resources in different areas of business. Doing this helps the business gain clarity about whether to change the resource allocation or go on with the same arrangements.
- Organizations also need to pay to their creditors. These are the liabilities of the organization. As an accountant, you need to make sure that these payments made/ paid in advance/ payment due are properly measured.
- Organizations have many contracts to fulfill. Accounting determines whether the contracts are being fulfilled or not.
- Disclose the information to the public and Government so as to maintain the transparency of the business and to ensure an accurate picture of the financial position of the organization.
The finance domain has varied sub-domains. And in each sub-domain work-life balance is different. For example, if you are an equity research professional, you will get enough time to relax at the weekend, get home at night and spend the weekend time with your family. But let’s say you’re an investment banking professional. In that case, you may not get time even for yourself; leave the chances of spending time with your near ones. So according to the domain in finance, work-life balance varies.
In the case of accounting professionals, work-life balance is mostly maintained. Except at the end of the financial year and at the time of tax payment, most of the time, accounting professionals maintain a good work-life balance.
Let’s dive into the salary curve and the job opportunities of each of the domains.
First, let’s talk about finance professionals.
According to Payscale.com, the median salary of finance professionals is US $84,800 per annum.
Let’s have a look at the salary of finance professionals as per the experience –
However, according to the Bureau of Labor Statistics, U.S. 2014-15, it was found that the mean annual salary of finance professionals is US $69,184 and growth is terrific. It’s predicted that in 2022, the growth of salary for finance professionals would be 16%.
Now, let’s have a look at the accounting professionals.
According to US News, the median annual salary of an accountant is around the US $65,940 per annum. The 75th Percentile is the US $87,530 per annum and 25th Percentile is the US $51,130 per annum.
Let’s have a look at how the salary of an accountant has changed over the years –
If we compare the salary of accountants over the last 8 years (from 2006 to 2014), we will see that the salary has increased by the US $13,420 per annum which is by no means is a small number. According to the Bureau of Labor Statistics, U.S. (2014-15), the salary of accounting professionals would increase by around 13% in 2022. And from the above graph, we can say, the claim is appropriate.
Let’s look at the comparison of accounting with other best jobs in terms of salary –
From the above graph, it’s clear that the salary of an accountant is much less than the salary of finance professionals.
Pros and Cons of Finance and Accounting Career
#1 – Finance
Pros of Finance Career
- Finance has many sub-domains. Thus if any student wants to pursue finance, she doesn’t need to get stuck in one narrow avenue of work and she can explore as much as she can. So if you want to pursue a career in investment banking and later find it demanding, you can switch to an equity research profile.
- Finance needs technical skills. If you can learn a few important technical skills like financial analysis, valuation, financial modeling, VBA, Quantitative Finance, your success as professionals would be much higher than those who have acquired only basic skills.
- If you stay in the finance domain for a longer period of time, you will be paid much more than the accounting domain.
Cons of Finance Career
- As finance has so many sub-domains, it sometimes gets difficult for students to decide what to choose and what to leave behind. We can call it analysis-paralysis.
- If you work in general finance, you will not get compensated well. The only way to earn more in the finance domain is to specialize.
#2 – Accounting
Pros of Accounting Career
- The best part of accounting is its work-life balance. Rarely there is any pressure and if you’re good in accounting, you don’t need to worry about the security of the job.
- Even if the scope of accounting is narrow, still you can specialize in auditing, taxation or pure financial accounting and can ensure better pay as a result.
Cons of Accounting Career
- The domain is very narrow and rarely do you have an opportunity to specialize in something broader. That doesn’t mean you can’t do much in accounting. But people who are in love with repetitive work enjoy working in this profession.
- The compensation in this domain is not up to the mark. But if you can complete CA (only 2% of entire applicants pass the exam), you will definitely have better prospects.
Finance vs Accounting Video
This has been a guide to Finance vs Accounting. Here we discuss the top differences between finance and accounting along with education required, Primary tasks, work-life balance, Salary, exit opportunities. You may also have a look at the following articles –