Question: What Is the Difference Between Finance and Accounting?

Answer: Accounting and finance are distinct but related business specializations that align with different functional aspects of an organization. Accounting involves tracking and reporting financial transactions according to clearly defined rules and procedures. Finance relies on the information provided by accountants and other sources to manage assets, coordinate investments, and formulate plans for the future allocation of financial resources. While there is overlap in the skills and training required in accountancy and finance, the responsibilities and priorities in accounting differ from those in finance.

Defining Accounting and Finance

Accounting refers to the formal processes by which the financial activities of a business entity or an individual are documented and reported. Effective asset management requires a clear understanding of past transactions and current financial status in order to plan strategically for future investments and expenditures. Accounting procedures are designed to provide businesses and individuals with a clear record of past gains and losses and maintain an ongoing assessment of an entity’s current financial status.

Finance encompasses a range of activities related to the allocation of assets, the coordination of investments, and the management of money, all of which rely on information provided by accountancy. Financial analysts, advisors, brokers, and investors look to the future and attempt to manage risk and maximize returns based on their knowledge of various financial products, their understanding of how markets function, and the current valuation of a financial portfolio. Before financial assets can be efficiently allocated they must be accurately calculated. Once investments are made, the return on those investments must be tracked and tabulated. Thus, accounting and finance are functionally interrelated, and they rely of many of the same tools, theories, and principles. However, accounting and finance have different objectives, different purposes, and distinct yet complimentary roles in the management of money and other assets.

Training in Accounting vs. Finance

Accounting and finance are areas of specialization within the larger realm of business and management. They are subjects that may be studied at the bachelor’s degree level, often as concentrations within a larger business or economics major. They are areas of focus in MBA programs and in specialized master’s and doctoral degree programs. These advanced degree programs are designed to prepare students for professional careers in accounting and finance, as well as for research and academic positions. While there is some overlap between an accounting curriculum and a finance curriculum, there are many areas where the curricula diverge.

Accounting and finance are grounded in a basic understanding of businesses principles and economic theories; mathematical and statistical analysis; and business law and ethics. Students in accounting and finance programs learn how businesses are structured, how markets function, and how to read and prepare financial reports. However, accounting and finance use this core knowledge as a foundation for different purposes. In an accounting program, students learn about the auditing process, the intricacies of the tax system, and the software systems used to track and report financial information. In contrast, students in a finance program study investment strategies, financial products, econometrics, and strategies for forecasting market dynamics and managing financial risk. The table below illustrations the similarities and differences between a typical master’s in finance program curriculum and a typical master’s in accounting program curriculum.

Master’s in Accounting Curriculum
Master’s in Finance Curriculum
Accounting and Financial ReportingAccounting and Financial Reporting
Business LawBusiness Law
Auditing Theory and PracticeFinancial Markets
Accounting Information Systems and TechnologiesFinancial Econometrics
Tax EntitiesInvestment Strategies
Commercial Transactions and the Uniform Commercial Code (UCC)Financial Risk Management
Corporate Financial Research and ReportingQuantitative Analysis and Financial Modeling
Professional Responsibilities and Ethics in AccountingBusiness Leadership and Ethics

Licensure and Certifications in Accounting vs. Finance

Accounting and finance are similar to the extent that an undergraduate degree in business, economics, finance, accounting, or a related field that includes coursework in upper-level mathematics and statistics is typically sufficient for most entry-level positions. However, advancement in both fields generally requires some combination of additional academic coursework, professional training, and formal certification and/or licensure. Entry-level positions in accounting include tax preparer, accounts payable clerk, inventory analyst, and bookkeeper. Entry-level positions in finance include financial analyst, loan officer, and investment analyst.

Accounting has a more formal system for career advancement than is typical in finance. While there are many jobs in accounting that can be done without professional certification and/or licensure, all 50 states have provisions for licensure in accountancy that are tied to passing the Uniform Certified Public Accountant (CPA) exam. The CPA credential serves as a benchmark in the field of accounting. Employers may prefer or require CPAs for certain mid- and upper-level positions, including controller and chief financial officer. Similarly, businesses and consumers who rely on the expertise of accountants often view the CPA credential as a necessity. In addition, there are some restrictions placed on unlicensed accountants. For example, filing financial reports with the Securities and Exchange Commission (SEC) and representing clients before the Internal Revenue Service (IRS) requires CPA licensure. There are other certifications that address accounting specializations, including Certified Internal Auditor (CIA) and Certified Fraud Examiner (CFE), but the CPA certification is the current standard for licensure.

The field of finance has a more complex system for licensing and certification, which reflects the broad range of activities covered by financial specialists. Investment and securities licensing falls under the purview of the Financial Industry Regulatory Authority (FINRA), a private self-regulatory agency, and the North American Securities Administrators Association (NASAA). FINRA and NASAA provide licenses to brokers and dealers based on the financial products they handle and the scope of their business practice. While these licenses may be necessary in order to sell and trade stocks, bonds, commodities, mutual funds, insurance, and other financial products, they are typically not required by individual states or federal agencies. For example, FINRA’s General Securities Representative Exam (GSRE) confers the Series 7 license, which enables stockbrokers to apply for a license to trade. While it serves as a prerequisite for many of FINRA’s other specialized licenses, it is not required for state licensure. The exception is NASAA’s Uniform Securities Agent license (also know as the Series 63 license), which under the Uniform Securities Act is required by each state for the securities transactions within that state. In addition, individuals and firms doing business in areas overseen by the SEC must comply with the SEC’s provisions for Registered Investment Advisors (RIAs), which require an individual or a representative of the firm to have passed the Investment Advisor’s Law Examination (or Series 65 exam) administered by FINRA.

In accountancy, CPA licensure indicates a level of professional achievement and mastery of the practices of accounting as outlined in the Financial Accounting Standards Board’s general accepted accounting principles (GAAP). There is no equivalent in finance. The Chartered Financial Analyst (CFA) credential offered by the CFA Institute is one of the more widely recognized of many credentials in the field of finance, but it is not formally recognized by states for licensure purposes.

Accounting vs. Finance: Qualitative Differences

Accounting is often characterized as a formal set of procedures and processes that can be mastered through the application of established principles of financial reporting. In contrast, finance is an inexact science that attempts to quantify risk and maximize opportunity by studying markets, modeling outcomes, and making informed decisions about what may or may not happen. Accounting is grounded in the certainties of hard numbers and calculations; finance in the uncertainties of market stability and growth, supply and demand, and other economic factors that can be forecasted but not foreseen. While accounting and finance are closely related fields, they are practiced in different environments, engender different challenges, and attract different personality types. These qualitative features may be an important consideration for those exploring the differences between a career or degree in accounting and a career or degree in finance.

Business FAQ Pages:

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FAQ: Are There Master’s in Finance Programs That Have 100% Online Instruction?
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