Accounting Cycle

 

The Accounting Cycle: 9-Step Accounting Process

 

The accounting cycle, also commonly referred to as accounting process, is a series of procedures in the collection, processing, and communication of financial information.

 

As defined in earlier lessons, accounting involves recording, classifying, summarizing, and interpreting financial information.

 

Financial information is presented in reports called financial statements. But before they can be prepared, accountants need to gather information about business transactions, then record and collate them to come up with the values to be presented in the reports.

 

The cycle does not end with the presentation of financial statements. Subsequent steps are needed to be done to prepare the accounting system for the next cycle.

 

Accounting Cycle Steps

1. Identifying and Analyzing Business Transactions

The accounting process starts with identifying and analyzing business transactions and events. Not all transactions and events are entered into the accounting system. Only those that pertain to the business entity are included in the process.

For example, a personal loan made by the owner that does not have anything to do with the business entity is not accounted for.

The transactions identified are then analyzed to determine the accounts affected and the amounts to be recorded.

The first step includes the preparation of business documents, or source documents. A business document serves as basis for recording a transaction.

 

Accounting Cycle Diagram

2. Recording in the Journals

A journal is a book – paper or electronic – in which transactions are recorded. Business transactions are recorded using the double-entry bookkeeping system. They are recorded in journal entries containing at least two accounts (one debited and one credited).

To simplify the recording process, special journals are often used for transactions that recur frequently such as sales, purchases, cash receipts, and cash disbursements. A general journal is used to record those that cannot be entered in the special books.

Transactions are recorded in chronological order and as they occur.

Journals are also known as Books of Original Entry.

                                          

3. Posting to the Ledger

Also known as Books of Final Entry, the ledger is a collection of accounts that shows the changes made to each account as a result of past transactions, and their current balances.

After the posting all transactions to the ledger, the balances of each account can now be determined.

For example, all journal entry debits and credits made to Cash would be transferred into the Cash account in the ledger. We will be able to calculate the increases and decreases in cash; thus, the ending balance of Cash can be determined.

 

4. Unadjusted Trial Balance

A trial balance is prepared to test the equality of the debits and credits. All account balances are extracted from the ledger and arranged in one report. Afterwards, all debit balances are added. All credit balances are also added. Total debits should be equal to total credits.

When errors are discovered, correcting entries are made to rectify them or reverse their effect. Take note however that the purpose of a trial balance is only test the equality of total debits and total credits and not to determine the correctness of accounting records.

Some errors could exist even if debits are equal to credits, such as double posting or failure to record a transaction.

 

5. Adjusting Entries

Adjusting entries are prepared as an application of the accrual basis of accounting. At the end of the accounting period, some expenses may have been incurred but not yet recorded in the journals. Some income may have been earned but not entered in the books.

Adjusting entries are prepared to update the accounts before they are summarized in the financial statements.

 

 

Adjusting entries are made for accrual of income, accrual of expenses, deferrals (income method or liability method), prepayments (asset method or expense method), depreciation, and allowances.

 

6. Adjusted Trial Balance

An adjusted trial balance may be prepared after adjusting entries are made and before the financial statements are prepared. This is to test if the debits are equal to credits after adjusting entries are made.

 

7. Financial Statements

When the accounts are already up-to-date and equality between the debits and credits have been tested, the financial statements can now be prepared. The financial statements are the end-products of an accounting system.

 

A complete set of financial statements is made up of: (1) Statement of Comprehensive Income (Income Statement and Other Comprehensive Income), (2) Statement of Changes in Equity, (3) Statement of Financial Position or Balance Sheet, (4) Statement of Cash Flows, and (5) Notes to Financial Statements.

 

8. Closing Entries

Temporary or nominal accounts, i.e. income statement accounts, are closed to prepare the system for the next accounting period. Temporary accounts include income, expense, and withdrawal accounts. These items are measured periodically.

The accounts are closed to a summary account (usually, Income Summary) and then closed further to the appropriate capital account. Take note that closing entries are made only for temporary accounts. Real or permanent accounts, i.e. balance sheet accounts, are not closed.

 

9. Post-Closing Trial Balance

In the accounting cycle, the last step is to prepare a post-closing trial balance. It is prepared to test the equality of debits and credits after closing entries are made. Since temporary accounts are already closed at this point, the post-closing trial balance contains real accounts only.

 

*10. Reversing Entries: Optional step at the beginning of the new accounting period

Reversing entries are optional. They are prepared at the beginning of the new accounting period to facilitate a smoother and more consistent recording process.

In this step, the adjusting entries made for accrual of income, accrual of expenses, deferrals under the income method, and prepayments under the expense method are reversed.

Author's Notes: So there you have the nine steps in the accounting cycle. This is just an overview of the accounting process. Each step will be illustrated one by one in later chapters.

 

1. What does ____statement_____ mean in Spanish?

It means Estado. (by Renzo Jhair)

2. How do you pronounce __Fix_____?   / What is the right pronunciation of ______?

It’s Fix. Between I and e.

How + adjective

1) To indicate a degree, a quantity, an age, some dimensions...

 

➡ how deep?

➡how heavy?

➡how high?

➡how far?

➡how fast?

➡countables => how many?

➡uncountables => how much?                                                          

➡how old? 

➡how often?                                                                                       

➡how wide?

 

2) It may also be used with all the adjectives: clear-sighted - important - lazy - good - hard - difficult - tiring - tired -....

 

➡How clear-sighted he is!  = 'He's so clear-sighted! '

➡How lazy this boy is! = 'This boy is so lazy ...'

 

3) Used with an adjective or an adverb, HOW can introduce an exclamative form ('How tired you are!') or an interrogative form : 'How tired are you?' Of course, the order of the words (subject + verb or verb subject ) is then what will guide you!

 

1) Do you know how _____ this dress is? I'd like to buy it!

2) 'Err... how ____ is the Empire State Building?' '1250 feet high, I think! '

3) Look at Bob! How ____ is he? He's 30 and I know that you're younger...

4) I can notice how ____ this news is to you....

 

John Biden:

1. How tall is he?       Do you know how tall he is?

2. How important is he?   Do you know how important he is?

3. How smart is he?       Do you know how smart he is?

4. How old is he?           Do you know how old he is?

5. How often does he appear on TV?   Do you know how often he appears..?

6. Other questions: Where is he from? Does he live in The US? etc.

 

Numbers

Written	Spoken
2014	twenty fourteen or two thousand fourteen
2008	two thousand eight
2000	two thousand
1944	nineteen forty-four
1908	nineteen o eight
1900	nineteen hundred      one thousand nine hundred
1600	sixteen hundred
1256	twelve fifty-six
1006	ten o six
866	eight hundred sixty-six or eight sixty-six
25	twenty-five
3000 BC	three thousand BC
3250 BC	thirty two fifty BC

HOW TO SAY 0

There are several ways to pronounce the number 0, used in different contexts. Unfortunately, usage varies between different English-speaking countries. These pronunciations apply to American English.

Pronunciation	Usage
Zero	Used to read the number by itself, in reading decimals, percentages, and phone numbers, and in some fixed expressions.
o (the letter name)	Used to read years, addresses, times and temperatures
Nil	Used to report sports scores
Nought	Not used in the USA

EXAMPLES

Written	Said
3.04+2.02=5.06	Three point zero four plus two point zero two makes five point zero six.
There is a 0% chance of rain.	There is a zero percent chance of rain.
The temperature is -20⁰C.	The temperature is twenty degrees below zero.
You can reach me at 0171 390 1062.	You can reach me at zero one seven one, three nine zero, one zero six two
I live at 4604 Smith Street.	I live at forty-six o four Smith Street
He became king in 1409.	He became king in fourteen o nine.
I waited until 4:05.	I waited until four o five.
The score was 4-0.	The score was four nil.

  2,000    à two thousand

  2.098    à two point o nine eight (ninety eight)

  0.089    à point o eight nine

  0.210    à point two hundred ten

  0.090    à point o ninety

  0.096   à  point o ninety six

  12,980.00 à twelve thousand nine hundred eighty

  19,080.09 à nineteen thousand eighty point o nine

  3,890,990.00 à three million eight hundred ninety thousand nine hundred ninety

  7,900,960.00  à seven million nine thousand nine hundred sixty

  789, 123, 999.09 à seven hundred eighty nine million one hundred twenty three thousand nine hundred ninety nine point 0 nine

  890, 000, 879.03 à eight hundred ninety million eight hundred seventy nine point o three

 4,050,100,002.09 à four billion fifty million one hundred thousand two point o nine

 2,690,989,098.00 à two billion six hundred ninety million nine hundred eighty nine thousand ninety eight

  What is a medic’s salary in Peru?  à About four thousand a month

  What is the salary of a congressman in Peru? à fifteen thousand soles   // in a year à one hundred eighty thousand

  When was America discovered? à fourteen ninety two // one thousand four hundred ninety two (1492).

Homework: Remember to mention your name

1. 78,999,888,444.09

2. 1,980.07

3. 11,980,672,903.02

4. 50, 830,908.023

5. 456,980.095

6. 777,902,216

Introduction to accounting

When deciding on a future career a lot of people don't give accountancy a second thought. Most people don't realize how varied the world of accounting is and in fact it is often seen as boring. The truth is that accounting is the backbone of any organization and offers a wide number of attractive careers within it.

Below you will hear about just some of the most common careers in the field of accountancy, there are of course many more, but we don't have time to talk about all of them.

When we consider the accounts team within a company, we generally think about clerks, both sales ledger clerks and purchase ledger clerks recording the financial information from all transactions the company makes. Other roles include the payroll clerk responsible for processing staff salaries and the tax which occurs from them. Higher up the hierarchy we have the management accountant who finalizes the accounts and prepares the annual financial statements. The people doing these jobs make sure that the directors or owners of the company always know its true financial position.

However, accounting is more than just reporting financial data. A good accounts team actually works to save the company money by minimizing the tax payable and delaying payments so companies can earn interest from their banks.

These job roles are not so clear in smaller accounting practices, where the accounting staff often need to perform various tasks from meeting clients to helping with loan applications. Often the majority of the work in these smaller practices is done by bookkeepers. Generally, the owner of the practice is the most senior accountant and is usually a chartered accountant, which means that their signature is accepted on the financial statements.

The job opportunities for accountants don't stop there: auditors are the police of the accounting world and when they are called into a company it is their job to ensure that the accounts were done in the correct way and that everything was accounted for. The most feared of these auditors are the government auditors who are sent to companies suspected of somehow breaking the rules. Working as an auditor is very different from other accountancy work as there is no routine; you work in many locations and have contact with many people. Although, you should be thick-skinned as often the accounting staff in companies do not like the idea of being audited.

Career progression within accountancy often results from a specialist knowledge in a particular area, tax advisors are able to help their clients lower their tax bill thanks to their in-depth knowledge of taxation law and specifically what a client can off-set against tax.

As you can see the world of accountancy offers various careers, but in all of these areas there are some qualities that a potential accountant should have. Firstly, as accounting is the process of collecting and classifying financial data all accountants need to be perfectionists unwilling to accept anything less than an exact result. Also, as accountants deal with large volumes of data they need to have a good eye for detail and a real love of numbers.

A talented accountant will also be able to advise their clients on the best course of action to take so as to save money and at the same time stay within the local accounting standards.

Accountants have to follow very strict rules and codes of conduct in order to make sure that they do everything in a legal way. If an accountant breaks these rules they could face severe punishment, but some accountants practice creative accounting to get around rules without breaking them. Confidentiality is obligatory for all people working with accounts as the financial data could be very sensitive.

Whether working in the public or private sector, accountants can expect to earn very good salaries and also gain valuable knowledge on topics like income tax, value added tax (VAT) and pension schemes which can help them in their life outside of work. What's more, as accounting is such an important part of a company's success there will always be a demand for good accountants.

After reading this text I hope that you will appreciate the complexity and the variety of accounting and the value accountants serve in an organization. So the next time you hear someone say that accounting is dull, please correct them. Accounting is about truth and money, and there is nothing dull about that!

Task: Answer the questions. Remember to mention your name (Ex. Carlos Pérez) Until 5 pm.

1. Do most people like accounting when deciding on a future career?

2. What are the most common careers in the  field of accountancy?

3. What is the role of an accounting team?

4. What happens with the accounting staff in smaller companies?

5. What do auditors do in the accounting world?

6. Why do tax advisors need a lot of knowledge in the field of taxation?

7. Do accountants need to pay lots of attention to their numbers? Why?

8. Do accountants have to follow rules? Why?

9. Would you recommend friends who are excelent accountants to companies? Why?

10. Do you think accounting is about truth and money?

11. Annual financial statements need to be done according to local accounting standards and signed by a chartered accountant.

	True
	False

12. Bookkeepers and tax advisors are usually part of the management accountant team.

	True
	False

13. Especially auditors need to follow the code of conduct and adhere to strict confidentiality.

	True
	False

Banking and Buying

1. al por mayor / al por menor (wholesale / retail)

No vendemos al por mayor. (We do not sell wholesale.)

Me encanta el sector de la venta al por menor. (I love the retail industry.)

2. a precio rebajado (discounted)

Allí venden libros a precios rebajados. (They sell discounted books over there.)

3. artículos de consumo (consumer goods)

Hay mucho contrabando de artículos de consumo. (There is a lot of consumer goods smuggling.)

4. artículos de primera necesidad (basic necessity products)

El azúcar y la harina son artículos de primera necesidad. (Sugar and flour are basic necessity products.)

5. balance (balance)

Necesito comprobar el balance de mi cuenta. (I need to check my current account balance.)

6. banco / banca (bank / banking)

The difference between banco and banca goes beyond their gender. While a banco is a bank (the building), banca (banking) refers to the business conducted by a bank or the services it offers to its clients.

¿Hay algún banco por aquí? (Is there any bank around here?)

Hoy vamos a hablar de la banca privada. (Today we are going to talk about the private banking.)

7. billete (bill)

¿Podría cambiarme este billete de 20 euros por dos billetes de 10? (Could you please change this 20 euro bill for two 10 euro bills?)

8. caja (checkout counter)

Por favor, pague en la caja. (Please, pay at the checkout counter.)

9. cajero automático (ATM)

Necesito sacar dinero del cajero automático. (I need to withdraw money from the ATM.)

10. cobrar (to cash)

Me gustaría cobrar este cheque, por favor. (I would like to cash this check, please.)

11. comercio (trade)

Deberían ampliar la zona de libre comercio. (They should expand the free trade zone.)

12. compañía (company)

Tengo una pequeña compañía de seguros. (I have a small insurance company.)

13. cuenta bancaria (bank account)

Necesito su número de cuenta bancaria, por favor. (I need your bank account number, please.)

14. cuota (fee)

In Spanish, we normally use a comma for decimal points instead of a period. Additionally, we add currency symbols after the numbers (separated by a space!), not before them:

La cuota mensual es de 9,99 $. (The monthly fee is $9.99.)

15. deuda (debt)

Tenemos que liquidar esta deuda lo antes posible. (We must satisfy this debt as soon as possible.)

16. dólar (dollar)

Necesito comprar dólares antes del viernes. (I need to buy dollars before Friday.)

17. economía (economy)

La economía familiar está cada vez peor. (The family economy is getting worse and worse.)

18. euro (euro)

Me quedan tan solo 17 euros. (I only have 17 euro left.)

19. impuestos (taxes)

A nadie le gusta pagar impuestos. (Nobody likes paying taxes.)

20. libra (pound)

Libra can be a unit of measurement or it can refer to the British currency. When followed by a noun, it will normally be a unit of measurement but when it stands alone, it refers to money.

He comprado una libra de queso. (I have bought a pound of cheese.)

Necesito comprar libras. (I need to buy some pounds.)

21. libre de impuestos (duty-free / tax-free)

He podido invertir dinero libre de impuestos. (I have been able to invest money tax-free.)

22. moneda (coin / currency)

The word moneda has two different meanings: It can refer to individual coins or to the currency of a country.

Tengo tres monedas en mi cartera. (I have three coins in my wallet.)

La moneda de Portugal es el Euro. (The currency of Portugal is the Euro.)

23. pagar (to pay)

I bet you knew this verb already. Pagar is a very easy-to-use -ar verb. That does not mean we like paying for things!

Tenemos que pagar el alquiler antes del domingo. (We have to pay the rent before Sunday.)

24. precio (price)

Every time I hear the word precio I remember myself watching “El Precio Justo” (“The Price Is Right”) as a kid. Now as an adult, I have become obsessed with the price of things (me he obsesionado con el precio de las cosas):

Esta camisa tiene un precio muy alto. (This shirt has a very high price.)

25. salario (salary)

Tengo un salario fijo más una comisión. (I have a fixed salary plus a commission.)

26. vender / venta (to sell / sale)

La acción de vender algo se llama venta. (The action of selling something is called a sale.)

Doing Business

27. a la orden de (by order of)

El cheque fue extendido a la orden del beneficiario. (The check was issued by order of the payee.)

28. contribuyente (taxpayer)

El contribuyente recibirá la carta en cinco días. (The taxpayer will receive the letter in five days.)

29. déficit (deficit)

Notice the difference in pronunciation! Also notice the Spanish word has an accent mark.

España debe reducir el déficit anual. (Spain has to reduce its annual deficit.)

30. entrada de dinero (inflow of money)

La principal entrada de dinero de mi negocio proviene de donaciones. (The main inflow of money for my business comes from donations.)

31. exportar / exportación (to export / export)

Hemos comenzado a exportar aceite de oliva. (We have started exporting olive oil.)

La exportación de aceite de oliva se ha triplicado. (Olive oil export has tripled.)

32. giro de dinero (money order)

Tengo que enviar este giro de dinero por correo. (I have to send this money order by mail.)

33. importar / importación (to import / import)

No podemos importar más de lo que podemos comprar. (We cannot import more than we can buy.)

La importación ilegal está en alza. (Illicit import is on the rise.)

34. ingresos (income)

La principal fuente de ingresos de España es el turismo. (Spain’s main source of income is tourism.)

35. liquidez (liquidity)

La venta le añadirá liquidez al mercado. (The sale will add liquidity to the market.)

36. préstamo (loan)

Necesito un préstamo para comprar un coche nuevo. (I need a loan to buy a new car.)

37. presupuesto (budget)

Tenemos que ajustarnos al presupuesto original. (We need to stick to the original budget.)

38. propiedad (property)

Me gustaría vender mi propiedad. (I would like to sell my property.)

39. saldo (account balance)

Me gustaría saber por qué han congelado el saldo de mi cuenta. (I would like to know why my account balance has been frozen.)

40. sucursal (branch)

Este banco tiene sucursales por todo el mundo. (This bank has branches all over the world.)

41. tasa (fee)

No se olvide de pagar la tasa cuando se registre. (Do not forget to pay the fee when you register.)

42. transacción (transaction)

La transacción se ha realizado correctamente. (The transaction has been carried out correctly.)

Playing the Stock Market

43. acción / accionista (share / shareholder)

“Action” and acción are clearly cognates (check the difference in pronunciation). However, acción also means “share,” and the person who owns shares is called accionista.

El accionista compró 50 acciones a 30 dólares cada una. (The shareholder bought 50 shares for $30 each.)

44. activos y pasivos (assets and liabilities)

Deberías añadir los activos y pasivos al informe. (You should add the assets and liabilities to the report.)

45. bienes (assets, property)

Probablemente el banco embargará todos mis bienes. (The bank will probably seize all my assets.)

46. bolsa (stock market)

Es un momento muy malo para invertir en bolsa. (It is a very bad moment to invest in the stock market.)

47. bono (bond)

Los bonos corporativos no son arriesgados. (Corporate bonds are not risky.)

48. capital (capital)

Capital is a very interesting word because depending on its gender, its meaning changes.

La capital means “capital city.” That is why we say cada país tiene una capital (each country has a capital city).

When it is masculine (el capital), it refers to “capital” as in wealth. Bear that in mind!

No tengo capital suficiente para empezar un negocio. (I do not have enough capital to start a business.)

49. financiación (funding)

Necesitamos financiación del gobierno central. (We need funding from the central government.)

50. fondo de inversiones (investment fund)

Ese fondo de inversiones es privado. (That is a private investment fund.)

51. ganancias (profit)

Although the singular word ganancia exists, it is very rarely used. When referring to profit, choose the plural noun ganancias.

Las ganancias de la compañía son más altas este año. (The company’s profit is higher this year.)

52. garantía (collateral, backing)

Tendremos que usar nuestra casa como garantía para el préstamo. (We will have to use our house as collateral for the loan.)

53. inflación (inflation)

Once again, watch out for the pronunciation!

El aumento del precio del petróleo ha sido debido a la inflación. (The increase in the price of oil has been due to inflation.)

54. mercado (market)

El mercado mundial está en peligro en la actualidad. (The global market is currently in danger.)

55. oferta y demanda (supply and demand)

La oferta y la demanda de teléfonos móviles afecta directamente a su precio de venta. (The supply and demand of cell phones directly affects their selling prices.)

56. porcentaje (percentage)

Solo debe invertir un pequeño porcentaje de sus ganancias. (You should only invest a small percentage of your profit.)

57. quebrar / quiebra (to go bankrupt / bankruptcy)

Quebrar normally means to break, but when used in reference to money, it means to go bankrupt. As you can see from the noun quiebra, quebrar is an e:ie verb:

Muchos negocios quiebran en invierno. (A lot of businesses go bankrupt during the winter.)

La quiebra es lo peor que le puede pasar a una empresa. (Bankruptcy is the worst that can happen to a company.)

58. bancarrota (bankruptcy)

Bancarrota and quiebra are synonyms and they are both used equally often. You can choose the one you prefer, but I would recommend using bancarrota at first because of its similarities to English “bankruptcy.”

La explosión de la burbuja inmobiliaria ha supuesto la bancarrota para mi negocio. (The burst of the property bubble has led to the bankruptcy of my business.)

59. tipo de cambio (exchange rate)

Los riesgos por tipo de cambio son algo muy normal en estos tiempos de crisis. (Exchange rate risks are very common in these times of crisis.)

60. valores del Estado (government securities / bonds)

Le recomiendo invertir en valores del Estado. (I recommend that you invest in government bonds.)

Useful Expressions

¿Dónde hay / Dónde puedo encontrar… (Where is / Where can I find…)

61. un banco? (a bank?)

62. un cajero? (an ATM?)

63. una oficina de cambio? (an exchange bureau?)

Necesito / Me gustaría… (I need to / I would like to…)

64. abrir una cuenta. (open a bank account.)

65. cambiar dinero. (exchange currency.)

66. sacar dinero de mi cuenta. (withdraw money from my bank account.)

67. transferir dinero. (transfer money.)

68. ingresar… (deposit…)

69. solicitar una tarjeta de crédito. (apply for a credit card.)

70. cancelar mi tarjeta de crédito. (cancel my credit card.)

71. enviar dinero. (send money.)

72. solicitar un préstamo/crédito. (apply for a loan.)

73. pagar mi deuda / mis impuestos. (pay off my debt / pay my taxes.)

74. cobrar este cheque / mi nómina. (cash this check / my payroll check.)

75. hablar con el director. (speak to the bank manager.)

76. Su cuenta está en números rojos. (Your bank account is in the red.)

77. ¿Podría decirme el saldo de la cuenta, por favor? (Could you tell me what my current account balance is, please?)

78. ¿A cómo está el cambio? (What is the current currency exchange?)

79. ¿Podría cambiarme este billete? (Could you please change this bill?)

80. ¿Cuáles son las tasas de interés? (What are the current interest rates?)

More questions for speaking:

1. Would you like to open a business?    -Yes.

2. What kind of business would you like to open?  - A shoe store. A restaurant. A minimarket

3. Where would you open a business?  - Depends.

4. Do you usually go to the bank?  - Not much.

5. Where could I find a bank near here?

6. How much is 100 soles in dollars?

7. Would you like to have a credit card?

8. How many minutes / long does it take to the bank?

9. What business will you open later?

10. Would you like to get a loan?

11. Do you invest in the stock market?

12. Would you like to have a property?

13. How much was your last year capital?

14. Do you have a credit account?

15. Would you like to have/make a lot of money?

16. Would you like to pay off my debts?

17. How much would you like to earn in your business?

18. What paying methods do you like the most when paying?

19. How much is your monthly pay?

20. Where can I find a property to buy?

Accounting Vs Finance: Which Should You Study?

It’s all about FAME. And no, we’re not talking about the 1980 American musical film Fame, we’re talking about the popularity of FAME subjects among university students… obviously.

The popularity of FAME subjects (finance, accounting, management and economics) comes from their vital role in the world of business, particularly those first two letters of the acronym: accounting and finance.

The primary difference in the battle of accounting vs finance is that accounting has a relatively narrow focus, while finance is wider-ranging, covering an array of specializations in the world of business, economics and banking.

A total of 36 countries boast at least one university among the 200 top accounting and finance schools ranked in the QS World University Rankings by Subject 2018, showing it’s not just highly developed countries which have a need for accountants.

But, should you study finance or accounting? Read on for an in-depth comparison of both subjects, to help you make a decision...

	Accounting	Finance
Typical course content	Auditing Budget analysis Business strategy Financial accounting Financial reporting Forensic accounting Information systems International accounting Macro/microeconomics Management accounting Professional standards and ethics Quantitative analysis Risk management Tax accounting	Advanced derivatives Asset markets Behavioural finance Corporate finance Economics/econometrics Financial mathematics Financial management Financial markets Financial planning Financial engineering Financial accounting Financial reporting International finance Private equity Risk management Venture capital
Career potential	Accountant (trainee, public, professional and certified) Actuary Auditor Bookkeeper Budget analyst Credit controller Financial consultant Financial examiner Forensic accountant Payroll administrator Risk assessor Tax advisor Treasurer	Commercial banker Financial consultant Financial manager Financial trader Hedge fund manager Insurance officer Investment banker Quant specialist
Key skills gained	Quantitative skill Specialized knowledge of varied accounting topics and techniques Awareness of GAAP (generally accepted accounting principles) Knowledge of accounting regulation issues Strong understanding of business industry	Understanding of industry practices and principles Strong theoretical knowledge Research skills Communication skills Knowledge of stock market, trade and investment Analytical skills Ability to understand and interpret numerical and statistical data Up-to-date knowledge of correct business practices
Types of qualification	Undergraduate level: Bachelor of Accountancy (BAcc, BAcy or BAccty); Bachelor of Arts in Accounting (BA/ACC); Bachelor of Science in Accounting (BSc/ACC) Graduate level: Master of Accounting (MAcc or Mac); Master of Professional Accounting (MPA, MPAc, MPAcc or MPAcy); Master of Science in Accounting (MSA)	Undergraduate level: Bachelor of Arts in Finance (BA/F); Bachelor of Science in Finance (BSc/F)  Graduate level: Master of Science in Finance (MSF); Master of Finance (M.Fin); Master of Financial Economics (MFE); Master of Applied Finance (MAF)
Professional accreditations	CPA (Certified Public Accountant - US) ACA/CA (Chartered Accountant – UK and Commonwealth) ACCA (Chartered Certified Accountant – UK)	CFA (Chartered Financial Analyst); CTP (Certified Treasury Professional); CPRM (Certified Professional Risk Manager); CF(Corporate Finance Qualification); CVA (Certified Valuation Analyst); CQF (Certificate in Quantitative Finance)
Salary potential	Average starting salary in the US for undergraduate accounting graduates (2019 figures): US$57,511 Average postgraduate starting salary in the US: $69,605 129th in PayScale’s ranking of Majors by Salary Potential	Average starting salary in the US for finance majors (2019 figures): $58,464 Average postgraduate starting salary in the US: $74,201 63rd in PayScale’s ranking of Majors by Salary Potential

Accounting vs finance

At undergraduate level, it’s possible to take a joint accounting and finance degree, in order to gain a more general knowledge of both accounting and finance professions. However, those who study further will usually specialize in either one or the other, in order to gain more advanced expertise in one particular field.

While accounting focuses on the day-to-day management of financial reports and records across the business world, finance uses this same information to project future growth and to analyze expenditure in order to strategize company finances. So finance degree students will likely be more interested in financial strategy and control, while accounting degree students will be more focused on professional principles and processes, used in order to manage numbers rather than influence them.

What do accounting degrees cover?

An accounting degree will provide a foundation for specialized accounting careers, as well as many other related careers. Accounting careers typically involve analyzing and utilizing financial information in order to evaluate a business’ financial position. This can involve anything from basic book-keeping to managing balance sheets and income statements. Accounting careers often have a large focus on past records and present reports, involving the creation and analysis of these records, and now often also extend to encompass planning, controlling, decision-making, stewardship, accountability and more.

Although it is fairly easy to pursue accounting careers with just a bachelor’s degree, postgraduate study is an option for those who want further specialized knowledge in a particular area. In order to become a chartered accountant, you’ll need to gain further professional qualifications specific to the country in which you wish to work. Depending on the hiring business, however, these professional qualifications can sometimes be gained on the job, often with subsidies from your employer.

Accounting specializations

Those who study accounting can often specialize in topics such as auditing, tax, risk assessment, international accounting and management accounting. Forensic accounting is another possible option, allowing students to immerse themselves in real-life case studies in order to provide a rounded understanding of how accountancy processes are used within legal proceedings, such as with cases relating to fraud, electronic crime, insurance claims, bankruptcy and corporate ethics. As with finance degrees, those who wish to study accounting with further specialization and independent research are also able to undertake a further postgraduate degree at MRes or PhD level.

What do finance degrees cover?

A finance degree, on the other hand, is a great starting point for careers in financial services, across business, banking and consultancy sectors. According to US salary data gathered by PayScale, finance careers also have the potential to be slightly more lucrative than most accountancy routes. This is due to the fact that finance careers typically focus on the management of current and future figures of a business or organization, as opposed to just the recording of past and present income and expenditure. This means that those in finance careers often have the added responsibility of predicting and analyzing the potential for profit and growth, assessing monetary resources, utilizing accounting statistics and reports, and also looking externally for future funding options.

Finance specializations

Common specializations for those who study finance at degree level include corporate finance, financial evaluation, behavioral finance, derivatives, capital markets, econometrics, financial modeling, quantitative finance, investment management, financial regulation, financial reporting, and even some aspects of accounting. These specializations, although taught within one program at undergraduate level, are sometimes offered as entire courses in their own right at postgraduate level. Other possible programs include financial management, banking, international finance, financial engineering, risk and financial planning.

Accounting and finance degree entry requirements

To study accounting or finance at undergraduate level, you will not be expected to have relevant work experience or an academic qualification specifically in accounting or finance. However, applicants will be required to prove their numerical proficiency, along with their interest in accounting and finance sectors. This can be done with high school and A-level qualifications in related STEM and FAME subjects such as business, mathematics, economics, computer science, and other sciences and technologies. Extracurricular activities such as a math club membership may also be taken into account.

If you are applying for a postgraduate accounting or finance program, you will be expected to have completed a related undergraduate program and/or a number of years’ relevant professional work experience. However, this is not always compulsory, and students who can prove their quantitative and analytic capabilities through the content covered in their previous degree or by taking an exam such as the GMAT or GRE may also be considered.