Yin and Yang - Accounting and Finance Degree Comparisons
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If there is one topic that frequently confuses people it is the difference between accounting and finance. Yet when you do accounting and finance degree comparisons you can easily see that one is concerned mostly with historical financial data and its use in decision making, and the other is focused on money and investing.
You can think of accounting and finance as the yin and yang of business! One looks back and one looks forward, and in certain areas they overlap.
History versus Forecasting
When considering an accounting vs finance degree the difference can be summed up this way:
Accounting – the organization, systemization and analysis of existing financial information
Finance – the management and investment of money
Accounting is concerned with recording and managing financial information related to business operations. For example, an accountant might work with accounts receivable, accounts payable, general ledgers, financial statements, and payroll.
Accounting necessarily looks backward at what has taken place and reports it using accepted accounting principles. Those reports and statements are then used for decision making.
Finance is concerned with money management. Finance managers deal with money and investments. They are involved in managing cash and cash equivalents to insure a business has enough operating capital in the future or are responsible for insuring investments are productive. The focus is on macroeconomics. Finance relies on a number of mathematical formulas like present value and future value.
Both Ask “How Much?”
One of the ways to view the difference between accounting and finance is to think in terms of the question “How Much?” Accountants ask questions like, “How much did we spend last quarter on marketing?” or “How much is the equipment inventory worth?”
The finance manage will ask, “How much will it cost in interest and fees to pay for a loan needed for a planned capital expansion?” or “How much should be invested in equities versus money market funds given the current market rates?”
Now that you are convinced there is a significant difference between accounting and finance, you also need to understand that the two subjects overlap.
Where Accounting and Finance Meet in the Middle
Accounting and finance are not entirely separate disciplines. Accountants use historical data to establish future budgets and make informed decisions concerning financial management in the future. Accountants use financial formulas to make entries reflecting future activities like interest accruals for example. Or they use historical information to make future financial decisions.
Finance managers must rely on historical accounting data to determine how much is available to invest and the amount needed to cover operational expenses.
Because the two disciplines are interrelated, some people choose to get a double major accounting and finance degree. The accounting courses cover topics like financial statements and microeconomics. The finance courses cover topics such as banking and investments.
In the final analysis, an undergraduate degree in accounting or finance means you are prepared to begin a great career. Both degrees offer many job options. Accounting majors may choose to focus on cost accounting, financial accounting, forensic accounting, public accounting, auditing or government accounting to name just a few options.
Finance majors choose careers in personal financial planning, corporate finance, banking and investment management. Securities traders are usually finance majors.
