Differences Between Accounting, Finance & Economics

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Accounting, finance and economics are all related fields, and all often focus on the flow of money. Accounting, though, is chiefly focused on record keeping and the analysis of records of spending and income within a company. Finance is closely related, but it is generally focused more on looking to the future of an organization and planning investments and spending. Economics is a bit distinct, as a social science that looks at understanding how money and resources flow within a society.

Accounting Records

Accounting is responsible for producing financial records within an organization, whether they're publicly available statements given to investors and regulators like the Securities and Exchange Commission or internal reports on, say, the efficiency of a particular store or factory. It's primarily focused on what's happened fiscally within a company and maintaining an accurate understanding and records of the business.

Accounting often takes the most detailed look of any of these three fields, including maintaining budgets and financial records spelling out each dollar spent by a company and what it was spent on. Accuracy, precision and specificity is key to the field, since companies are often required to produce accounting reports in specific formats and even internal reports need to be correct and specific to be useful.

Finance and Planning

If accounting is concerned with recording what's already happened within a company, finance is more focused on planning for the future and deciding how money should flow within the organization to achieve its potential goals. Accounting statements might determine that a particular division of a company is losing money, while finance would concern itself with whether to fix the problem by investing in changes or redirecting its funds elsewhere in the organization.

People within a company may work on both aspects, but accounting is primarily concerned with looking at the company's past and present, such as its ongoing revenue earned and actual numbers, while finance tends to focus on its future.

The Science of Economics

Economics is a social science focused on how resources flow and are distributed within a society or across the world. Occasionally, economists may look at how a particular firm is operating, but they're usually doing so to see a broader truth about how organizations work, rather than what a particular company needs to do to balance its books or allocate money to maximize profit.

Rather than produce financial statements or recommendations on how a company should spend its money, economists are more likely to produce scientific papers and research about broad topics.

The tools of accounting and finance may be useful to economists, but as a scientific pursuit the job is fundamentally more abstract and removed from the day-to-day operations of a company than accounting or finance could ever practically be.

References

About the Author

Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.