I cannot count the number of times I have been in a room where this question is raised. It is an important question to raise, and the response depends on who you ask. My answer is always “It depends.” This is because the response changes depending on how one defines the two professions – financial analysis and accounting.
Often people interchange finance and accounting; hence they assume that a financial analyst and an accountant perform the same duties. Do you know that finance and accounting are different fields of study at the collegiate stage? So, what is accounting? What is finance? The simple answer is that finance investigates the “money future” of a business (or person) while accounting reports on the “money past” of a business (or person). Let’s dig deeper.
DIFFERENCES
FINANCE
Finance is the management of money that involves activities like investing, borrowing & lending, forecasting, and budgeting. Investing engages in financial instruments like stocks, bonds, money, and CDs. Forecasting and budgeting use tools like financial models to predict how a business’ money will perform in the future. Management teams rely on financial predictors when making future business-related decisions.
ACCOUNTING
Accounting is the reporting and management of a business’s money (also called “financial books”). Accounting activities include collecting payments owed (mainly from customers or clients), making payouts due (to vendors, employees, and government agencies), forecasting, budgeting, and reporting on the company’s financial health. Like their reliance on financial predictors, management teams rely on accounting reporting results to help in making future decisions.
SIMILARITIES
From the descriptions above of each term you may have noticed the overlap shared by finance and accounting:
- Both involve tracking the activity of money,
- Both engage in forecasting and budgeting functions,
- Both use tracking results to help look into a business’s future,
- Both are key areas of every business.
These similarities explain why the terms are often used interchangeably by professionals. Now let me explain my earlier response of “it depends.” If your business is looking at what instruments it can invest in for a future profit, you want to speak with a financial analyst (or advisor). This is an individual who has the training and experience in advising management on which investing tools – bonds, CDs, Real Estate – would be most beneficial and a good fit for the business. However, if your business wants to know the proper time to restock inventory or the timing for when it can expand its marketing department (how many people and at what pay rates), or you need tax services, you want to seek out an accountant. What if your business needs budgeting or forecasting services? Often either an accountant or a financial analyst can provide these services since both functions overlap finance and accounting. It is crucial that you understand what an accountant does versus what a financial analyst does so that you involve the right person. Now the next time someone asks you, “Is my financial analyst my accountant?” you can confidently say, it depends.
DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting, or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.
