What’s the difference between finance and accounting?
You may be wondering if there are significant differences between these two fields. After all, they both deal with money.
Plus, you might also be wondering whether knowing the differences between them is going to make any difference for your business. Is it going to influence your financial goals or decisions? Is it going to affect the way your business handles money?
The short answer to these questions is yes, it will.
Having a clear idea of what distinguishes finance from accounting makes a world of difference for those interested in or affected by these two.
Students starting university will know what program they should commit to, educational establishments will know what to teach. And businesses will know the kind of people they need for their financial goals.
So if you’re the latter, keep on reading because knowing what differentiates finance from accounting is going to help your business so much more than you think.
The Difference Between Finance & Accounting
The terms finance and accounting sound synonymous and even interchangeable.
But what makes finance fundamentally different from accounting, and vice versa, is the former is predictive while the latter is reflective. Their differences mainly lie in what the company’s capital will be used for and where it is at a certain point in time.
What Is Finance?
Finance is concerned with making good use of capital and securing the long-term financial health and management of the company. It deals with money’s expansion and management, ensuring that more of it will return as it is being allocated to different activities.
There are three main branches of finance often cited across sources tackling this subject. According to Investopedia, an online resource for “financial information”, these are:
- Personal finance
- Public finance
- Corporate finance
These three branches determine the flow of money relevant to a person or within a household, within a country, and within an organization, respectively. According to Investopedia, common activities concerning finance are asset management, investing, and budgeting.
What Is Accounting?
On the other hand, accounting is more concerned with understanding financial data. In a corporate context, it all starts with the daily transactions of a business.
What transactions did it make in a certain time period? What does the data say about the business’s financial health? How much is expected to flow into or out of the company? What are the next best steps to take given the information?
All these tasks are done by accountants, some of whom may require special licenses to conduct accounting work. Accounting doesn’t fall into the hands of only one person, that is if you want it done efficiently and effectively.
This line of work branches out to a variety of activities requiring different skill sets. Bookkeeping, for example, needs someone who’s capable of systematizing and maintaining records of daily transactions.
On the other hand, general accounting and financial planning require someone with specialized accounting training and experience.
Additionally, accounting is location-dependent. Every country has a specific set of record-keeping standards and laws with which companies must comply.
And because an accountant’s salary widely varies, some accounting professionals, including those based in the Philippines, are trained to follow the rules imposed in foreign countries so they can lend a hand to those with more conservative budgets.
Work Difference Between Finance & Accounting
While finance and accounting often merge into the same department in a company, the work of a finance professional and an accountant couldn’t be any more distinct.
Because finance and accounting study different things, they would necessarily involve different types of work. And with different work comes different roles in a company.
What are these roles? And what output does each one usually demand? According to posts in Colorado Technical University’s and Florida Institute of Technology’s websites, the following professions fall under either finance or accounting.
Finance
- Investment bankers
- Financial analysts
- Financial managers
- Stock brokers
- Financial advisors
- Financial planners
Accounting
- Bookkeepers
- Accountant and auditors
- Budget analysts
- Tax accountants
- Financial reporting accountants
- Cost accounting managers
- Accounts payable and receivable clerks
In finance, you can see many of the jobs involve long-term, “forward-looking” work, as HBS Online puts it in one of their posts. All of them have to do with determining where to invest capital. And most, if not all, of them are advisory in nature, placing emphasis on the creation of wealth.
In accounting, the jobs deal with reviewing the immediate flow of resources. It looks into the company’s sources of revenue or the areas to which a company’s resources were funneled.
Using financial data, accountants will create a summary and analysis of relevant accounting records for stakeholders. This is what makes accounting reflective.
Now that we’ve shed light on the difference between finance and accounting, you’re probably thinking of another relevant question. Should you partner with accountants or finance professionals to boost your business’s profits?
Should You Outsource Accountants or Finance Professionals?
Of course, the point of making distinctions between accountants and finance professionals is to know how they will help your business grow financially. So, which of the two should you put out job vacancy ads for?
You’re probably expecting the answer you’ve seen over a million times across blog posts and textbooks. But the thing is, it depends just won’t cut it here because what you urgently need are both to keep your business afloat.
By outsourcing finance professionals, accountants, and bookkeepers, you’re able to accomplish work necessary for your company to run in the long-term and the short-term.
When you integrate accountants into your team, you gain professionals who can track your company’s daily transactions, which they will analyze and record according to the standards and laws of the place in which your company operates.
At the same time, having finance professionals with foresight is going to help you expand and bring your business greater opportunities.
Each has a unique purpose. One will help you attain long-term financial goals, and the other will keep your company on track through daily accounting work. But both, in the long run, will support risk management and better resource allocation, contributing to the overall financial health of your company.
In Summary
What’s the difference between finance and accounting in a corporate setting? The answer lies in the type of work involved in handling finances.
Finance professionals — who can be financial analysts, financial managers, and the like — are engaged in expanding and managing capital and the overall financial health of the company. Their goal is to make sure as more of it is put out, much more will return.
Accountants and bookkeepers handle the financial records of a company. They’re responsible for summarizing and analyzing its financial data as well as for other relevant corporate functions, including issuing invoices and payroll.
Looking for professional CPAs and accountants at a much lower price? At NarraSoft, we treat your business as though it were ours, so we make sure its financial health is constantly in good shape.
Partner with our accountants today to accelerate your business growth!
Simply send us an email at sales@narrasoft.com or send us a message on our chat box or contact form.
Sources: Investopedia (1) (2) | coloradotech.edu | floridatechonline.com | CFI | online.hbs.edu