FINANCE AND ACCOUNTS
Finance
Finance is the management of money and investments for
individuals, corporations, and governments. Finance
professionals work in careers such as investment banking,
wealth management, and financial planning and analysis
(FP&A). Whether these professionals work on behalf of
individuals or businesses, they are responsible for ensuring
that there is adequate funding (capital) for the needs of the
situation and that the funds are allocated as optimally as
possible. Their job is to create value by managing capital in a
way that earns higher than expected risk-adjusted returns.
accOUnTinG
Accounting is the recording, maintaining, and reporting of a
company’s financial records. Accounting professionals work
for individuals, in-house at corporations, or on behalf of
other businesses at a public accounting firm (such as the Big
Four). These professionals are responsible for ensuring that
all financial transactions are correctly entered into the
1.1
general ledger, that account balances are correct, and that
financial statements are accurate.
EmployErs and CliEnts
Both accounting and finance professionals have clients that
are individuals, corporations (businesses), governments,
and non-profits. When it comes to their employers, however,
there are significant differences. The most common types of
employers for each group are listed below.
1.2
Finance
✓ Banks (retail, commercial, and investment)
✓ Insurance companies
✓ Research companies
✓ Operating companies (regular businesses)
Accounting
✓ Public accounting firms (that audit large companies)
✓ Personal tax filing firm
✓ Operating companies (businesses
rolE with FinanCial statEmEnts
There are some major differences in the ways finance vs.
accounting professionals work with financial statements –
accountants are primarily responsible for creating them,
while finance professionals are primarily responsible for
analyzing them.
If you enjoy collecting and organizing large amounts of data,
such as all of a company’s invoices, receipts, and financial
records, then being an accountant could be a good fit for
you.
1.3
If you prefer analyzing and interpreting information to show
how well a company is performing or coming up with ideas
about how it could do better, then finance could be right for
you.
typEs oF FinanCE vs. aCCounting
Below is a detailed comparison of the various types of each
profession.
Finance
✓ Personal
✓ Corporate
✓ Public
✓ Behavioral
✓ Social
Accounting
✓ Financial
✓ Public
✓ Forensic
✓ Management
✓ Tax
1.4
✓ Audit
BaCkward vs. Forward-looking
Accountants, by nature, are backward-looking because they
take historical financial information to prepare their reports.
By the time their reports come out, the figures could be
several months old. Finance professionals, by contrast, are
forward-looking because they have the nearly impossible
task of trying to predict the future.
If you like studying the past, that could be a good sign you’d
enjoy accounting work, while if you enjoy trying to think
about the future will hold, you may prefer finance work.
1.5
pErsonality diFFErEnCEs BEtwEEn
FinanCE and aCCounting
One of the biggest differences in accounting vs. finance
careers is the types of personalities that are drawn to each of
them
Finance
✓ Analytical
✓ Inquisitive
✓ High attention to detail
✓ Thinks about scenarios
✓ Concerned with adding value
✓ Business development skills
✓ Problem-solving
Accounting
✓ Accountable
✓ Detail-oriented
✓ Rules-based thinking
✓ Risk management
✓ Procedure-oriented
✓ Concerned with accuracy
1.6
CorporatE FunCtions
Below are the primary corporate job functions and
responsibilities for each of the respective professions.
Finance
✓ Funding the business
✓ Raising capital (debt and equity)
✓ Optimizing the firm’s Weighted Average Cost of Capital
✓ Seeking the best risk-adjusted returns
✓ Corporate strategy
✓ Budgeting and forecasting
✓ Mergers and acquisitions
Accounting
✓ Bookkeeping
✓ Tracking of revenues and expenses
✓ Internal reporting
✓ Financial reporting
✓ Auditing
✓ Risk management
1.7
BranChEs in FinanCE
There are primarily the following five branches in finance:
1. Public finance
This branch of finance deals with the roles played by the
government in improving and sustaining a healthy economy.
Government revenue and government expenditure of public
authorities are assessed. It also involves the management of
the revenue, expenditure and debt load of the company.
Anyone who wants to learn about the management of public
funds, currency value and price stability must delve into
public finance.
2. Personal Finance
When finance is applied on an individual level, it becomes
personal finance. Through this branch of finance, one learns
to manage own finances This involves learning budgeting,
investing and saving money. After learning personal finance,
one can plan a career as a personal banker, tax advisor,
estate planner, investment advisor and insurance advisor.
1.8
3.Corporate Finance
Corporate finance is essential for every business for
financing operations for wealth distribution and return
generation. Through this branch, one learns to plan finances,
raise funds, invest and monitor financial activities. It directly
impacts company decisions that lead to financial and
monetary impacts
4.Social Finance
Also known as impact financing, social finance is an
approach for generating positive social and environmental
outcomes with expected returns. This involves a direct
investment of capital towards projects, businesses and
organizations. Socially responsible investing principles are
used while making investment decisions to align it with
personal values and sustainability goals.
5.Behavioral finance
It is a branch where psychological influences that impact
market outcomes are studied. This helps in understanding
different outcomes across different industries and sectors.
Behavioral finance discusses how instead of rational
calculation, people are inclined towards making financial
decisions based on their emotions and cognitive bias.
1.9
Where dO We Use Finance and
accOUnTinG?
Finance:
Strategic Planning: Finance is used in strategic planning to
determine the overall financial direction of a company,
including long-term goals and objectives.
Investment Decisions: It is crucial for evaluating
investment opportunities, such as whether to invest in new
projects, acquisitions, or financial instruments.
Capital Budgeting: Finance is involved in capital budgeting,
helping decide which projects or assets to invest in based on
their potential returns.
Risk Management: Finance assesses and manages
financial risks, including market, credit, and operational
risks.
Asset Management: Finance professionals manage and
optimize the allocation of a company’s financial resources
and assets.
Financial Markets: Finance plays a role in financial markets
by analyzing market conditions, trading securities, and
managing investment portfolios.
1.10
Funding Strategies: Finance experts decide how a company
should raise capital, whether through debt financing, equity
financing, or other means.
Valuation: Finance is used to determine the value of assets,
companies, and investment opportunities.
Accounting:
Recording Transactions: Accounting involves recording
financial transactions in a systematic and organized manner.
Financial Statements: Accountants prepare financial
statements, including income statements, balance sheets
and cash flow statement, to communicate a company’s
financial performance.
Compliance and Reporting: Accounting ensures
compliance with financial regulations and standards,
including Generally Accepted Accounting Principles (GAAP)
or International Financial Reporting Standards (IFRS).
Taxation: Accountants calculate, report, and optimize tax
liabilities, ensuring the company complies with tax laws.
Audit and Assurance: Accountants perform audits to verify
the accuracy of financial records and statements, providing
assurance to stakeholders.
1.11
Budgeting: Accounting contributes to the budgeting process
by creating budgets and comparing actual results to
budgeted figures.
Costing: It helps determine the cost of goods or services,
which is essential for pricing decisions.
Internal Controls: Accounting establishes and monitors
internal controls to prevent fraud and errors in financial
transactions.
Financial Analysis: Accountants analyze financial data to
determine the financial health of the company, identify
trends, and make informed decisions.
Finance vs accOUnTinG:
similariTies
Finance and accounting are closely related as both:
✓ Deal with financial data and information.
✓ Help in decision-making within the organization.
✓ Facilitate risk management processes within the
organization.
✓ Used in financial planning and budgeting process.
✓ Subject to financial reporting standards such as GAAP
and IFRS.
1.12
lEarning outComEs
Here’s a more detailed breakdown of the learning outcomes
and differences between finance and accounting.
Accounting:
Studying accounting equips individuals with skills in
financial reporting, budgeting, forecasting, and internal
control, enabling effective financial management and
decision-making within organizations.
Understanding Financial Statements: Students learn to
prepare, analyze, and interpret financial statements (income
statement, balance sheet, cash flow statement).
Accounting Principles: They gain knowledge of Generally
Accepted Accounting Principles (GAAP) and International
Financial Reporting Standards (IFRS).
Recording and Reporting: Students learn to record, classify,
and summarize financial transactions accurately.
Auditing and Compliance: They develop skills in auditing
financial records to ensure accuracy and compliance with
regulations.
1.13
Cost Accounting: Students learn about cost accounting
principles and techniques for managing and controlling
costs.
Tax Accounting: They gain knowledge of tax regulations and
prepare tax returns for individuals and businesses.
Finance:
Financial Analysis: Students learn to analyze financial data,
identify trends, and make financial forecasts.
Investment Decisions: They gain knowledge of investment
principles and techniques for managing assets and
investments.
Capital Budgeting: Students learn to evaluate and make
investment decisions related to capital projects.
Financial Planning: They develop skills in financial
planning, budgeting, and forecasting.
Risk Management: Students learn to identify, assess, and
manage financial risks.
Corporate Finance: They gain knowledge of corporate
finance principles and practices.
1.14
