You probably see the words “accounting” and “finance” appear together all the time, such as in degree titles. This is because they are closely related, and often support each other. But despite this relationship, they are two distinct fields, and it’s important to understand the differences between them.
Difference in focus
Both finance and accounting are to do with financial transactions within and between organisations. However, the two areas have different focuses.
Accounting looks at the day-to-day management of finances within organisations. This involves recording transactions, producing financial statements, and analysing and reporting on those statements. Accountants are involved with a range of processes, from double-entry bookkeeping to drafting tax returns.
Finance, on the other hand, focuses on the management of assets, investments and liabilities. It focuses more broadly on whole capital markets, rather than single organisations. It overlaps with economics, business and banking, using theoretical knowledge to advise on decision-making about choosing securities for investment portfolios.
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Theory vs practice
While finance often involves looking at the theory of transactions within capital markets, accounting is usually concerned with the practice of managing these transactions within organisations.
Of course, accounting can be looked at theoretically as well, and is often studied as a subject at universities. One area of accounting, management accounting, often overlaps with finance in its more strategic focus. Management accountants work with the financial data collected and managed by accountants in more practical roles. They apply theoretical knowledge to this data to analyse and make recommendations to organisations on their financial activities. Management accountants usually take a broader, more strategic view, analysing and advising rather than carrying out practical tasks that aid in transactions. However, this strategic approach is used to give advice more specific to the internal processes of an organisation, rather than its position within broader capital markets.
The two areas offer different kinds of career paths. Those with an interest in finance often go into roles like banking, or mortgage and insurance advice, where they offer guidance on aspects of managing funds. These kinds of careers are often kick-started through qualifications like CeMAP, which offer the full skill set needed to succeed in the financial services sector.
Those with a passion for accounting, on the other hand, often end up, surprisingly, as accountants. Within accounting, there is a broad range of career paths, from technical accounting, to financial accounting, to management accounting. Within these areas, job roles allow professionals to specialise in areas like tax, auditing and credit control. Aspiring accountants often begin with qualifications like AAT, ACCA or CIMA.