The Difference between Accounting and Finance

ZACH DE GREGORIO, CPA
www.WolvesAndFinance.com

A description of the differences between the two subject areas of Accounting and Finance. There is a lot of confusion about the difference between these two fields. In business school, Accounting and Finance are two separate areas of study. They use two different tools and skill sets to accomplish their goals. These are pretty large generalizations, but it is valuable to understand the distinction between the accountant role and finance role in an organization. Accountants are primarily concerned with a goal that is historical looking. In finance, the goal is future looking. The goal of Accountants is to create a set of financial statements that represent the financial standing of a company at a point of time. They are concerned with all the historical economic activities that have led up to this point. Finance starts with the financial statements from the accountants. Finance is then concerned with defining their assumptions about the future, and that informs the business decisions on how to best use the available cash in the best way for the future. The reason this is important is because it informs two different definitions about risk. Accountants and finance professionals are talking about two different things. Accountants are concerned with material misstatements. They are trying to minimize that risk as much as possible. Finance people have a different relationship with risk. They embrace risk, because there is always an element of risk when you deal with the future. Finance is concerned with the variance between the assumptions and what actually ends up happening. Risk is very important to finance professionals, and risk plays a big role in determining valuations. For a finance person, it becomes about managing your risks. This description is focused on working in a corporate environment. Investing, on the other hand, is a unique area of finance. But investing still deals with managing risk through assumptions of the future. Both roles of accountant and finance professional are incredibly important. The business leader needs to understand both the company’s performance historically, and the best options to get performance in the future. When accounting and finance work together, they can enable decisions that are in the best interest of the company.

Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.