Accounting and finance are closely related subjects that deal with money, business and management. Both can be highly rewarding endeavors but differ in many ways.
Understanding the differences between accounting and finance can help you decide which degree to pursue, making the best choice for your future career.
Accounting
Accounting and finance are critical elements in business, ensuring organizations manage their finances correctly. However, their scopes and priorities differ significantly.
Accounting is the practice of recording and reporting financial transactions to produce accurate, comprehensive financial statements. Additionally, accounting helps companies abide by applicable laws and standards related to finance.
Finance, on the other hand, utilizes data to make strategic decisions. It combines financial data with non-financial metrics and KPIs in order to gain insights about potential growth patterns.
Both professions are on the rise, with the US Bureau of Labor Statistics projecting an increase in accountant and auditor positions through 2026, while financial analyst jobs will grow at an annual rate of 11 percent. This growth can largely be attributed to technological advancements that enable more data analysis.
Financial Statements
Financial statements, such as the balance sheet and income statement, are critical tools for analyzing your company’s finances. They give investors and creditors a comprehensive view of your company’s financial condition.
A balance sheet is a comprehensive overview of your assets and liabilities at any given moment. Assets include cash, accounts receivable and inventory; liabilities refer to debt obligations such as payroll expenses or debt payments that you owe others.
The balance sheet also contains a section known as owners’ equity, which is the remaining value of your company after subtracting liabilities from assets. This money belongs to shareholders, either private owners or public investors, and it’s often used for calculating dividends or share repurchases.
Taxes
Taxes are a way governments collect funds from individuals and businesses. This money goes to support various projects such as military operations, police services, courts, roads, education facilities, social services organizations and health care facilities.
Taxation can be applied to income, purchases, the value of property, inheritances and gifts among other activities. Governments use taxes as a tool to influence macroeconomic performance or alter consumption/employment patterns within an economy by making certain classes of transactions more or less attractive.
Direct taxes are levied on goods and services produced or consumed within a country, such as sales tax and value-added tax (VAT). These charges are applied at the point of sale and remitted to the government.
Investments
Investing is the practice of placing capital to work today with the aim of generating income or appreciation in the future. Investments can be made with any type of asset or mechanism, including stocks, bonds, real estate property, precious metals and more.
No matter the form, investments are an integral component of accounting and finance. Whether you’re an individual investor or part of a large organization, attaining your investment objectives is paramount to success.
Investments can be made in almost any type of asset, but some carry greater risk than others. For instance, a certificate of deposit is considered a low-risk investment while stocks carry greater potential hazards than bonds.
Business Decisions
Business decisions can be daunting, yet they’re essential for the long-term success of your company. Whether launching new products, investing in new facilities or entering a new market, strategic decisions have an immense impact on both the direction of your business and how it interacts with its environment.
Operational decisions, on the other hand, tend to be simpler and have a smaller effect on your organization. They determine how well your business runs day-to-day – including profitability, customer retention rates, and risk management strategies.
Good decision-making requires carefully considering all potential outcomes, assessing the advantages and drawbacks of each option, and selecting one that will most benefit your business in the long run. While this process can be complex, it can also be made simpler by consulting qualified professionals or employees of your company for advice.
