If you’re going back to school, choosing your undergraduate major or just curious about the finance and accounting worlds, you may be wondering what the difference is between accounting and finance. The two fields aren’t a world apart, but there are important differences that are worth knowing. Let us break it down for you.
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Accounting vs. Finance: The Basics
The difference between finance and accounting is that accounting focuses on the day-to-day flow of money in and out of a company or institution, whereas finance is a broader term for the management of assets and liabilities and the planning of future growth.
If you want to exercise high-level control over a company’s strategy, finance could be for you. If you want to take a detailed look at a company’s books you’re probably more interested in accounting. It’s often said that accounting looks back to a company’s past financial transactions, whereas finance looks forward to plan future acquisition of assets.
Accounting is more about accurate reporting of what has already happened and compliance with laws and standards. Finance is about looking forward and growing a pot of money or mitigating losses. If you like thinking in terms of a longer time horizon you may be happier in finance than in accounting.
If you want to study accounting you can expect to take classes in accounting practices and accounting ethics, business law, tax law and accounting theory. If you study finance you’ll likely spend some time on macroeconomics and international finance in your classes, as well as on financial engineering and corporate finance.
Making the Choice: Finance vs. Accounting
The difference between finance and accounting may just be a matter of idle curiosity for some of us, but if you’re choosing a college major or a career, it’s an important distinction. Particularly if you’re planning to take on student loans, you probably want to be sure that you’re choosing the right path.
Choose accounting and if you work for a big company you’ll likely report to the company’s Chief Financial Officer. You could have a job title like Controller, Tax Manager, Fund Accountant, Valuation Analyst or Financial Reporting Accountant. Alternatively, you could become a Tax Accountant, a Bookkeeper, Treasurer or Auditor, for yourself, a business, a non-profit or the government.
As an accounting professional you’ll be tracking and reporting flows of money and ensuring compliance with best practices. You’ll rely on Generally Accepted Accounting Principles (GAAP) and you’ll likely come to be familiar with the tax code, too. Section 446 of the Internal Revenue Code will be your friend. That’s the section of the tax code that covers “General rules for methods of accounting.”
If you choose finance you have a different range of options. You could become a financial analyst, investment banker, financial examiner, personal financial advisor or money manager. You could work in consulting or corporate finance. Banking and insurance underwriting are also open to finance majors. And of course entrepreneurship is another route that’s open to finance types.
The Difference Between Finance and Accounting: Salaries
There’s a wide salary range in the fields of both finance and accounting. Both fields have strong growth prospects between now and 2024, as projected by the Bureau of Labor Statistics (BLS). Let’s take a look at a few examples of salaries and growth prospects.
According to the BLS, the median pay for a Financial Analyst in 2014 was $78,620 per year, $37.80 per hour. Between 2014 and 2024, the number of Financial Analyst jobs is projected to grow by 12%, a faster-than-average growth rate.
Accountants and Auditors have a median pay of $65,940 per year, $31.70 per hour. The number of jobs is projected to increase by 11% between 2014 and 2024, which is also an above-average growth rate.
Let’s take a look at an example on the lower end of the scale. According to the BLS, the median pay for Bookkeeping, Accounting, and Auditing Clerks in 2014 was $36,430 per year, $17.51 per hour. The number of jobs is projected to decline by 8% between 2014 and 2024. As you can see, the field of accounting has both high-salary, high-growth jobs and lower-salary, negative-growth jobs.
Salaries in finance tend to be high, but there are exceptions. One example is fundraisers. The median pay for fundraisers is $52,430 per year, $25.21 per hour. However, the job outlook is for 9% growth between 2014 and 2024, still above average. The BLS puts fundraisers in the “Business and Financial” category, but many fundraisers don’t have a finance degree. (That may be one of the reasons for the lower pay).
If you work in accounting your recording and reporting of financial transactions will support the work of the finance team. Likewise, if you’re in finance you’re depending on the clear and accurate work of the folks in accounting. Both fields require a high level of skill, education and comfort with quantitative analysis. And (with luck and hard work on your side) both have the potential to provide challenging work that’s well compensated.
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