When you hear the words “accounting” and “finance,” you may think they have the same meaning. However, there are differences between the two, and understanding the differences will give you the resources to grow your business and handle that growth.
What’s The Difference Between Financial and Accounting?
Both the finance and accounting departments focus on the company’s financial statements and everything that contributes to them. In general, the difference is that accounting focuses on the past and finance focuses on the future.
Accounting is responsible for ensuring that all financial transactions are entered correctly into the financial system. This includes processing accounts payable and accounts receivable, payroll execution, adjusting cash accounts, forming necessary expense incurred, tracking assets and liabilities on the balance sheet, and managing banking relationships. These tasks run throughout the month, and the book is closed when all entries for that month are complete. All of these activities are carried out in accordance with generally accepted accounting principles (GAAP) to ensure the consistency and accuracy of internal and external reporting.
Finance seeks to understand financial data through the lens of growth and strategy. This means reporting and forecasting trends, identifying areas of potential financial concern, and working with others in your organization to identify areas of opportunity. Reports and forecasts focus primarily on financial data, but you can also use KPIs and other non-financial indicators to reveal insights. The finance department usually directs the annual budgeting process and helps executives make decisions on strategic initiatives, fixed investment, and financing. The finance team, which may or may not be a CPA, is made up of people who understand GAAP and accounting functions.
Why it’s important to know the difference to make the best choice for your business
Regardless of the size of your business, the line between finance and accounting is never clear. Accounting teams may be deployed long before adding financial resources. Many talented accountants and managers in the organizational chart accounting group make the same contributions as real financial resources. However, there are times in the SME growth cycle when the former accounting team is unable to meet the growing needs of the business.
The existing accounting team (possibly one person) has been expanded and the required skills do not exist in the current resources. While investing in current resources and teaching the skills needed to support business growth is an option, the success of this strategy depends even on the aptitude and personality of the members of the accounting team. It’s frustrating for readers to find themselves without the right resources, but many underestimate the amount of time mismatch resources have been active. When the accounting team is asked to perform a task that may not be appropriate, the management team receives inadequate and inaccurate information. It’s not a good foundation for decision making. If “nonconformity” is a long-standing problem, it may be necessary to revise accounting practices and implement new reporting procedures. Appropriate resources promote consistency and efficiency, enabling leaders to make informed and timely decisions.
Accounting vs. Finance: Making The Right Choice
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 nonprofit or the government.
As an accounting expert, track and report cash flow to ensure adherence to best practices. They rely on generally accepted accounting principles (GAAP) and may be familiar with tax law. Internal Revenue Code Section 446 will be your friend. This is the section on tax law dealing with “general rules of accounting”.
If you choose to raise funds, you will have a different set of options. You can be a financial analyst, investment banker, auditor, personal financial adviser, 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.
Finance vs. Accountant Salaries – What’s the Difference?
There is a wide range of salaries in both finance and accounting. The Bureau of Labor Statistics (BLS) predicts that both regions have strong growth prospects until 2024. Let’s look at some examples of salaries and growth prospects.
According to BLS, the median wages of financial analysts in 2014 were $ 78,620 per year and $ 37.80 per hour. The job of a financial analyst is expected to grow at a compound annual growth rate of 12% between 2014 and 2024. The average salary for accountants and certified accountants is $ 65,940 per year and $ 31.70 per hour. Employment is expected to increase for 11 years between 2014 and 2024, which is also above average growth. Let’s look at an example at the bottom of the scale. According to BLS, the median wages for accountants, bookkeepers and auditors in 2014 were $ 36,430 per year and $ 17.51 per hour. Employment numbers are projected to decline by eight years between 2014 and 2024. As you can see, accounting has both high-paying, high-growth jobs and low-paying, negative-growth jobs.
Financial salaries tend to be high, but there are exceptions. One example is fundraising. The average salary for fundraising is $ 52,430 per year and $ 25.21 per hour. However, the employment outlook remains above average, with 9% growth between 2014 and 2024. BLS classifies fundraising into the “Business and Finance” category, but many fundraising activities do not have a degree in finance. (That may be one of the reasons for low wages).
If you figure in accounting your recording and reporting of economic transactions will help the paintings of the finance team. Likewise, if you`re in finance you`re relying at the clean and correct paintings of the parents in accounting. Both fields require a excessive degree of skill, schooling and luxury with quantitative analysis. And (with success and difficult paintings to your side) each have the capability to offer hard paintings that`s nicely compensated.
Conclusion
Overall, the main difference between financial and accounting, for most purposes, comes down to scope: accountants are mostly concerned with tracking money in a broad, macro sense (like how much cash is in an entire company, or how much profit it’s made from the year up to this point), while financiers focus on the performance of individual companies and pinpoint concerns that have a more concrete impact on investors (such as revenue, profits and earnings).
While it is true that accountants and finance people generally make more money than some other professions, that doesn’t necessarily mean that all accounting jobs are better paying than financial. In fact, most accountants and finance workers fall into the same range of pay code as many other entry-level jobs, with a few at the top making a lot more money than the rest of the range.