As two of the most popular industries within the business field, finance and accounting are often brought up interchangeably. While there are many similarities between the two, it is wrong to think of them as synonyms. After all, most finance experts could not work as professional accountants, and most accountants could not handle financial projects. So, what are some of the main dissimilarities?
Since both finance and accounting deal with money, grouping them may seem instinctive. Doing so, however, undermines the fact that they have different objectives. Accounting, for instance, prioritizes reporting how companies and individuals spend their capital, how transactions are recorded, and how ventures adhere to legal principles of the industry.
Finance, on the other hand, has very little to do with the reporting side of things. Instead, it is primarily focused on helping businesses and entrepreneurs increase their earnings by investing in new assets, making gainful purchases, and minimizing losses. Therefore, they are more interested in using the data to make forward-thinking conclusions.
Degree of Knowledge
Since accounting is an extremely complex field that includes a wide variety of laws and administrative agencies, practicians have to be extremely knowledgeable about their work. This includes learning the ins and outs of auditing, taxation, investing, journal entries, and more. Hence why the American Institute of Certified Public Accountants, or AICPA, reports that half of all applicants fail the CPA exam.
Even though finance requires a plethora of training, it is nowhere near as broad as accounting. After learning about the time value of money, coursework usually veers off into specializations. Interestingly enough, however, most financial experts will have to spend a considerable amount of time mastering accounting concepts. The reason why is that they have to work with annual reports of publicly traded companies, and studying accounting teaches them how to analyze income statement or balance sheet ratios, gauge investment lucrativeness, and similar. Accountants, though, do not have to dedicate much of their attention to finance.
Finance Pays More
According to the Bureau of Labor Statistics, or BLS, financial analysts earned a median salary of $85,660 in 2018. Accountants’ pay was overwhelmingly lower as the BLS measured their median compensation at $70,500. Thus, the current market seems to give finance an edge. It is important to note, however, that the long-term salary outlook tends to flip the statistics.
For example, accountants who stay in the industry for over a decade, thus, eventually reaching the partner status, earn hundreds of thousands of dollars each year. Those who work for Big Four companies can even reach seven-figure salaries. Financial analysts are generally not going to see their earnings cross the seven-figure mark unless they operate incredibly successful businesses. So, while the short-term perspective favors finance, accountants tend to make more in the long-run.
Finally, both fields rely on different resources. Those who work as financial analysts, for example, might have to use a ton of investment programs. Accountants are more prone to utilizing auditing or taxation software that does not carry financial algorithms.
Regardless of the said differences, both industries require highly trained workers who do not mind long hours and constant learning. Also, because accounting and finance revolve around money, people should usually be able to make the transition from one to the other.