Finance vs 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 corporation for a long time. They would tell you how different they are in their nature, the scope of work, and areas of expertise.

Finance is a vast field with general financial functions. In this core field, a professional has to perform various actions over and above these functions below:

• One of the most critical functions of finance is to source funds. For operating a business on a day-to-day basis and producing products and services, organizations need to invest a considerable amount in research, procuring the raw materials, hiring the right human resources, and in the processes that make the transition from raw materials to finished goods. So organizations need to find ways to source funds from various sources. And finance professionals take charge to source funds from multiple sources. They may go to financial institutions and ask for a loan, or they can conduct an IPO and gather the money from the public.
• Sourcing of funds is essential. 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, the rest will 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 its 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 would the profit 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. 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.

In finance, the idea is to distribute assets (current plus fixed) in an inappropriate manner. Accounting comes after that. It helps the organization measure the contributions of resources in different business areas. Doing this helps the business gain clarity about whether to change the resource allocation or go on with the same arrangements.

The four most important functions which make accounting different from any other domain are as follows:

• Organizations also need to pay their creditors. These are the liabilities of the organization. As an accountant, you need to ensure 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 to maintain the transparency of the business and to ensure an accurate picture of the organization's financial position.

Let's see the top differences between finance vs. accounting.

In layman's language, finance is the science of planning the distribution of assets within a company. On the other hand, accounting is the art of summarizing, reporting, and recording finance-related transactions. So now, let's go deep and understand what finance and accounting are all about.

Finance

Finance can be divided into two main functions.

• The first is to ensure that the operation of the business is done correctly. 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 involved in finding out which projects are best for clients to invest in regularly perform financial analyses.

Many professionals are also engaged in valuing the companies and finding out which companies to buy for expansion. Finance is a complex domain, and many subdomains are inherent within it. So it would be best if you found out which sub-domain you like and chose to expand your career in the same subdomain. You can go into corporate finance Project Finance, investment analyses, Equity Research, financial analysis, valuation, risk management, and so on and so forth.

Accounting

• On the other hand, accounting professionals are 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 is to represent the accurate financial picture of a company. The firm makes amendments and takes care of 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 a conclusion where you are in that area so that from there, you can change your direction. The primary purpose of accounting is similar. A company needs to be profitable in reality and on paper. Using accounting, the company understands how many liabilities they have, how many assets they own, how many taxes they need to pay, and how profitable the company is.

Finance

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. If you want to be in a managerial position in a big corporation, 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 grit for analyses and valuation also.
• Besides MBA, you can also go for core courses, like CFA, FRM, CQF,  Actuary, and many other core domain courses. They are internationally recognized, and if you want to pursue a career in these core domains, having a certification will pave your way.

Accounting

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 choose to go into accounting instead of finance.
• The two best courses you should opt for are C.A. and CPA. Both are globally recognized and would add tremendous value to you as a professional.

The finance domain has varied sub-domains. And in each sub-domain, the work-life balance is different. For example, if you are an equity research professional, you will get enough time to relax, get home at night, and spend the weekend with your family. But let's say you're an investment banking professional. You may not get time even for yourself; leave the chances of spending time with your near ones. So, according to the domain of 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, accounting professionals maintain a good work-life balance most of the time.

Let’s dive into the salary curve and the job opportunities of each of the domains.

But, first, let's talk about finance professionals.

According to Payscale.com, the median salary of finance professionals is the U.S. $84,800 per annum.

source: Payscale.com

Let’s have a look at the salary of finance professionals as per the experience –

source: Payscale.com

However, according to the Bureau of Labor Statistics, U.S. 2014-15, it was found that the mean annual salary of finance professionals is the U.S. $69,184, and growth is terrific. It's predicted that in 2022, the salary growth for finance professionals will be 16%.

Now, let's have a look at accounting professionals.

According to U.S. News, the median annual salary of an accountant is around the U.S. $65,940 per annum. The 75th Percentile is the U.S. $87,530 per annum, and the 25th Percentile is the U.S. $51,130 per annum.

source: money.usnews.com

Let’s have a look at how the salary of an accountant has changed over the years –

source: money.usnews.com

If we compare the salary of accountants over the last eight years (from 2006 to 2014), we will see that the salary has increased by the U.S. $13,420 per annum, which is a small number. However, according to the Bureau of Labor Statistics, U.S. (2014-15), the salary of accounting professionals will increase by around 13% in 2022. Therefore, 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 –

source: money.usnews.com

From the above graph, it's clear that the salary of an accountant is much less than the salary of finance professionals.

#1 - Finance

Pros

• 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, and Quantitative Finance, your success as a professional will be much higher than those who have acquired only basic skills.
• If you stay in the finance domain for a longer period, you will be paid much more than in the accounting domain.

Cons

• 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

• The best part of accounting is its work-life balance. Rarely is there any pressure, and if you're good at accounting, you don't need to worry about the security of the job.
• Even if the scope of accounting is narrow, you can still specialize in auditing, taxation, or pure financial accounting and can ensure better pay.

Cons

• 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 C.A. (only 2% of entire applicants pass the exam), you will have better prospects.

This has been a guide to Finance vs Accounting. We explain the differences between the two in terms of degree, salary, and careers, along with an infographic. You may also have a look at the following articles –

• What is Financial Accounting?
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