Finance vs. Accounting: Understanding the Differences
Accounting and finance are both parts of the FAME (Finance, Accounting, Management, and Economics) classification of industries. Finance and accounting are the components of FAME that are most closely related, and many universities consider the requirements for these fields so similar that they have the same degree program. Understanding the difference between finance and accounting can help you decide if you are suitable for this career path. In this article, we discuss why knowing the differences between finance and accounting is important, provide information about those differences, and explore how to choose the industry that is best for you.
Why it's important to compare finance vs. accounting
Understanding the differences between finance and accounting can help you understand which field you would enjoy working in the most. The education requirements for roles in finance and accounting are often similar. Daily work experiences between the two fields typically vary.
What is accounting?
Accounting involves recording and maintaining financial records for a business or individual. Those who work in accounting often prepare balance sheets, profit-and-loss statements, tax reports, and other documents. They can also make or receive payments, analyze existing financial records, and identify any errors or discrepancies. Some common job titles in the accounting industry include:
Chartered professional accountant (CPA)
Accounts payable clerk
Accounts receivable clerk
Financial Services assistant
Read More: Average Salary of an Accountant
What is finance?
Finance involves managing assets and making financial decisions. Those who work in finance help investors choose good investments and ensure that they have enough capital to support their endeavours. Financial professionals can also advise individuals and companies about when to sell assets for the best returns. They help manage mergers and acquisitions for many organizations, and they assist clients in buying and selling stocks, bonds, and other financial instruments. A certified financial analyst (CFA) is a financial analyst with independent certification. Here are some other common finance job titles:
Vice president of finance
Chief financial officer (CFO)
Read More: How Much Do Investment Bankers Make?
How are finance and accounting different?
While there are many differences between finance and accounting, the main difference is that those in the finance industry offer more long-term advice, and they focus on promoting future growth, whereas accountants advise for short-term impacts. Those in finance give investment and other financial advice to businesses and individuals. They help predict the financial outlook of a company and advise you on good investments. Those in accounting often create and provide the financial documents that individuals working in finance need.
Accountants provide short-term financial advice to help employers comply with applicable laws and save money on taxes. Rarely do they help with decisions that could have a long-lasting impact. Here are some more differences between finance and accounting:
Finance professionals often work for investment banks, wealth or asset management firms, banks, insurance companies, or corporations. Accountants are more likely to gain employment in accounting firms. Many in the accounting industry work as independent contractors or own their own businesses.
Financial professionals use their insight and experience, technical analysis, specialized software, and knowledge of current events to make investment decisions. They focus on analyzing data to predict future events, particularly fluctuations in stock prices and values of other investments. Comparatively, accountants are more concerned with the past. They study past financial records and track figures and facts, ensuring that record keeping is accurate for current transactions. They also help ensure that businesses follow accounting-related laws and regulations. Financial professionals often use the financial summaries created by accountants to make decisions. Those working in accounting then help execute those decisions.
Those working in the finance industry usually have a university degree in economics, accounting, finance, business, or a similar field. Many financial professionals have a Master of Business Administration (MBA), and it is a common requirement for investment bankers.
Those working in entry-level accounting positions, like account clerks, usually need a high school diploma. CPAs need to have a university degree and pass an exam. They often study accounting, finance, statistics, and similar topics. Depending on their province or territory, they also need between two years and 30 months of on-the-job training to receive their certifications. Auditors and accountants who want to act as trustees in bankruptcy cases need a separate license as well.
Those working in accounting and finance often find these skills helpful:
Analytical or critical thinking skills: Both professions require interpreting data and making decisions and recommendations.
Attention to detail: Working in these fields requires catching subtle errors and small changes.
Excellent written and verbal communication: Accountants and financial professionals need to communicate well with clients and coworkers.
Organization: They keep track of and organize many types of records.
Time management: They need to meet deadlines and keep appointments.
Adaptability: Adapting to changes in laws and industry outlooks is important for accounting and financial professionals.
Teamwork skills: Accountants and finance professionals often work together.
Along with these skills, those in accounting need an understanding of basic math to avoid errors and check for accuracy in their calculations. Here are other skills and abilities needed:
Persuasiveness: You often persuade clients about the merits of investments.
Leadership: Many senior employees lead a team of finance professionals.
Outgoing, friendly personality: Being outgoing and friendly helps finance professionals meet more clients and get more accurate information about investments.
Budgeting and managing cash flow: Finance professionals need to stay within client budgets.
Finance software skills: In many positions, software is essential for compiling and analyzing financial data.
Read More: Leadership Skills: Definitions and Examples
Duties and responsibilities
Knowing the typical duties in these positions can help you decide if it's right for you. Finance and accounting professionals both need to keep their knowledge about financial products, different industries, and tax laws current. They spend most of their time working in offices, and some may work from home, part-time or full-time. They may sometimes visit clients and businesses. Here are some of the typical duties of working in the finance industry:
Planning, organizing, and directing the operation of an accounting or other financial department.
Talking to clients about their financial goals, the amount of risk they're comfortable with, and their current finances.
Developing and implementing the financial policies and procedures of an organization
Using financial analysis software to compile data and determine the outlooks of different investments.
Creating charts and graphs to illustrate industry trends.
Recruiting, organizing, training, and managing staff members.
Here are some common duties of working in accounting:
Helping clients save regularly and select savings and retirement accounts
Assisting clients with estate management, tax returns, and other financial tasks
Completing monthly, quarterly, and annual accounting reviews or audits of financial activities
Explaining the financial status of a business or individual in a clear, understandable way
Is finance or accounting best for you?
Accountants usually get all the information they need from the records of businesses and individuals, so they rarely do research. Those in accounting do most of their work on a set schedule. Clients make appointments before seeing independent accountants, and accountants working for businesses have regular deadlines for reports and financial documents. They rarely amend reports or make other changes without plenty of notice.
In contrast, the prices of stocks, commodities, and other investments can fluctuate many times in a short period of time. This means that besides keeping appointments and meeting deadlines, finance professionals need to track fluctuations in the market and advise their clients on short notice. Even waiting a few minutes to make a transaction may prevent a client from earning thousands of dollars.
How do accountants and financial professionals spend their days?
Accountants and financial advisors often work together. Finance professionals often use the accountant's figures to inform their speculations. Accountants spend more time making calculations, and finance professionals use the information they get from accounting documents and financial analysis software. Those in the finance industry spend more time meeting with clients and doing research about investments than accountants. For example, before letting a client know which investment property to choose, an investment advisor would usually research past property values, property tax rates, the likelihood of flooding or inclement weather, and other factors.