Finance vs. accounting: The key differences and some similarities

When it comes to finance vs. accounting, the differences can be confusing. Yet there are many distinctions between the two that can majorly impact your business. One focuses on the present, while the other looks to the future.

Understanding the distinction between finance and accounting is essential to maximize your profits and cash flow and keep your finances in check. But it’s also important if you’re trying to decide which study path to pursue. 

So let's explore the key differences between finance and accounting, including their respective degree requirements, skill sets, and qualifications to get you hiring the just-right finance and accounting professionals for your business.

What is finance?

Finance is the study and management of money, investments, and other financial assets. It’s a broad field encompassing everything from banking to budgeting and investing. Finance helps businesses understand how to manage their money to achieve their short-term and long-term goals.

It involves understanding complex concepts such as risk management, financial projections and forecasts, and analyzing financial statements. People who work in finance use analytical tools to make informed decisions about where to invest resources to maximize returns while minimizing risks.

What is accounting?

Accounting is a field of study that deals with the measurement, analysis, and interpretation of financial transactions. Its primary focus is on the preparation of financial statements for decision-making purposes. Accounting also covers cost accounting, auditing, taxation, investments, and budgeting.

Accounting is an essential part of any business because it allows for the accurate tracking of finances. Proper accounting procedures will help you take informed actions about managing cash flow.

Finance vs. accounting: Key differences in your business

The key difference between finance and accounting is the focus of each discipline. Accounting involves recording past financial transactions and creating financial statements to help inform decision-making. Conversely, finance forecasts the cash flow types and allocates resources to get the maximum return on investment.

Another key difference lies in the roles they play within an organization. Accountants are typically responsible for preparing and presenting financial reports, while finance professionals are often involved in strategic planning, budgeting, risk management, and investment decisions.

When it comes to compliance with regulations and laws, accounting focuses on accounting standards like Generally Accepted Accounting Principles (GAAP). Finance professionals deal with financial regulators like the Securities and Exchange Commission (SEC). 

Roles in your business

Accounting ensures the data financial professionals use is timely and accurate. Accounting also handles paying taxes. Finance primarily focuses on managing money, investments, and risk.

Financial professionals work to optimize an organization's financial performance. They decide on capital allocation (how to invest money), risk management, and raising money from investors. They also assess various investment opportunities and manage financial resources to achieve the organization's goals.

On the other hand, accounting focuses on the accurate recording, reporting, and analysis of financial transactions. They're generally the main users of accounting software, where they can enter data and manage bills.

Accountants ensure that an organization's financial records comply with accounting standards and regulatory requirements. They also prepare financial statements and tax filings and provide critical financial information for decision-making within the organization.

Budgeting and planning

When it comes to budgeting and planning, finance professionals develop financial strategies and allocate resources to achieve the organization's objectives. They forecast future financial performance by analyzing historical financial data, market trends, and economic indicators. 

Finance experts create budgets, assess financial risks, and develop contingency plans to navigate potential challenges. They also create pro forma financial statements. 

Accountants and accounting professionals provide the necessary data and financial records to inform budgeting and planning decisions. They compile accurate financial information and ensure all transactions are properly recorded and categorized. 

Accountants also monitor the organization's financial performance against the budget, identify variances, and help adjust plans to maintain financial stability.

Financial statements

There is a major difference in the role of finance vs. accounting when it comes to financial statements. Financial statements include the income statement, balance sheet, and cash flow statement. 

Accounting involves putting these documents together, while finance analyzes them. Accounting primarily focuses on balancing the following equation: 

Assets = Liabilities + shareholders’ equity 

The accounting department and accountants ensure that all transactions are accurately recorded and adhere to accounting standards and regulatory requirements. Accountants also verify and reconcile financial data, maintain audit trails, and address any discrepancies to ensure the integrity of financial statements.

Financial professionals focus on cash and the company’s ability to generate and use it. In particular, they look at free cash flow—the amount of money a company has available to reinvest after paying expenses. 

Finance professionals analyze financial statements to evaluate a company's financial health, identify trends, and make recommendations for strategic decision-making. They use the information provided in financial statements to assess profitability. 

Finance vs. accounting education and degrees  

A strong understanding of the fields of finance and accounting can open up many job opportunities. There are various education paths and degrees to consider if hoping to enter the finance or accounting fields. Let’s start with the differences between finance vs. accounting degrees. 

Degrees

A bachelor’s degree is generally a requirement for both finance and accounting professionals. From there, a Master of Business Administration can help finance professionals advance their careers. Meanwhile, accounting professionals may pursue the ​​Certified Public Accountant (CPA) designation. 

A degree in finance focuses on analyzing data to help businesses make informed decisions about their financial future. On the other hand, a degree in accounting focuses more on bookkeeping, auditing financial statements, and preparing taxes.

Here’s an overview of the salaries you can expect to get or pay in the finance and accounting areas:

Finance and accounting professionals also have different skill sets they’ll bring to your business.

Skill sets

Having the right skill set is essential for success in finance and accounting. While having a degree can help open doors, possessing the proper skills will keep them open; here are some of the top skills for each:

In finance, critical thinking and problem-solving skills are key. Spotting potential issues and quickly finding solutions can be invaluable when dealing with complex financial transactions. In addition, strong communication skills can also come in handy when explaining complicated concepts to colleagues or clients.

Accounting requires an entirely different set of abilities. A sharp eye for detail is extremely important, as mistakes can have major implications on a company’s financial records. 

Additionally, aptitude in mathematics is vital for completing calculations accurately and efficiently. Finally, excellent time management and organizational abilities are essential for juggling multiple projects at once.

Certifications

When it comes to certifications, you’ll want to ensure you’re considering the right ones for your career or, if you’re hiring, looking for the right ones. 

Key finance certifications include: 

• Chartered Financial Analyst (CFA): The CFA designation is one of the most respected and recognized certifications in the finance industry. It demonstrates expertise in investment management, portfolio management, and financial analysis. To become a CFA charterholder, candidates must pass three levels of exams and meet work experience requirements.
• Financial Risk Manager (FRM): The FRM certification is a globally recognized credential for professionals who manage risk in the financial industry. It covers topics such as market risk, credit risk, operational risk, and risk management techniques. To earn the FRM designation, candidates must pass two exams and meet work experience requirements.
• Certified Financial Planner (CFP): The CFP certification is for financial planning professionals who provide comprehensive financial advice to individuals and families. It covers topics such as investment planning, retirement planning, tax planning, and estate planning. Candidates must pass an extensive exam, meet education and work experience requirements, and adhere to a code of ethics.

Key accounting certifications include: 

• Certified Public Accountant (CPA): The CPA designation is the most widely recognized certification in the accounting field. CPAs are experts in financial reporting, taxation, auditing, and helping avoid common tax audit triggers. To become a CPA, candidates must pass the Uniform CPA Examination, meet education and work experience requirements, and adhere to a code of professional conduct.
• Certified Management Accountant (CMA): The CMA certification is for accounting and finance professionals focusing on corporate financial management. It demonstrates expertise in areas such as financial planning, analysis, control, and decision support. To earn the CMA designation, candidates must pass a two-part exam and meet education and work experience requirements.
• Certified Internal Auditor (CIA): The CIA certification is the globally recognized credential for internal auditors. It demonstrates expertise in internal auditing, risk management, governance, and internal control. To become a CIA, candidates must pass a three-part exam and meet education and work experience requirements.
• Certified Fraud Examiner (CFE): The CFE certification is for professionals specializing in fraud prevention, detection, and deterrence. It covers topics such as financial transactions, fraud schemes, investigation techniques, and legal elements of fraud. To earn the CFE designation, candidates must pass a comprehensive exam and meet education and work experience requirements.

You may not need to hire someone with all of these certifications and may not even need anyone with any of the certifications. However, many small businesses use the services of a CPA to manage or assist with tax filings.

Streamline your accounting and save time

By understanding the differences between finance vs. accounting, businesses can make sure they allocate resources correctly and take advantage of both disciplines when handling financial reporting and managing their business. 

To boot: Accounting software such as QuickBooks can help track and record expenses to ensure your finance and accounting departments operate seamlessly