Tag: accounting

Areas of Accounting & Finance

Question: Are you considering going into any of these fields, or do you know anyone in them? Pick one area, and give your perception of what that person does.

The most basic thing we can do to start things off is to define accounting and finance. In the video, I said I wouldn’t give you the dictionary definitions, but here I will: accounting is the action or process of keeping financial accounts; finance is the management of large amounts of money, especially by governments or large companies. I know, very insightful, right?

In my opinion, it’s much more useful to think of how we would use these words in our own lives: Have you ever been planning something, and someone asked you if you “accounted” for all the variables? Well accounting tracks all the transactions that happen in a company. And what are your “personal finances,” other than making sure you have more money coming in than going out? Well finance makes sure the company doesn’t break the bank!

To give a little more color, let’s talk about 3 main areas of accounting and finance. These are corporate accounting, public accounting, and investment banking.

Corporate accounting basically refers to anyone working under the Director of Finance (sometimes even the CFO) in a company. I segment its main functions into accounts payable, accounts receivable, payroll, tax, and financial planning and analysis. Respectively, these functions pay the bills, bill the customers, pay the employees, pay the government, and review all of these ins and outs and plan for the future.

Public Accounting refers to professional service firms that specialize in various areas of helping those companies. The main functions I highlight are audit, tax, and… let’s call it other. We’ll give a cursory review of these below:

The first is an independent audit of a company’s financial statements, and regulations (especially in the United States with our Securities and Exchange Commission), insist upon this for publicly traded companies (traded on NYSE, NADAQ etc…) to provide the public with some confidence that, when they do thorough research into the company’s financials, they can rely on those numbers.

Tax refers to completing a company’s tax return, possibly in multiple jurisdictions. Instead of regulation, the demand for this arises out of the insane complexities of the tax code, driven by decades of special interests lobbying and government incentives. It doesn’t take much of a stretch of the imagination to figure that corporations’ taxes are even more complex than individuals’.

Lastly, firms provide specialized services such as valuation of a company that may be part of an acquisition, information technology consulting, estate planning, and other “value add” services.

Investment banking basically helps people (individuals, companies, and even governments) raise money by selling ownership. Typically, this is in the form of stock, but there are many and more complex forms of securities, and these firms are experts in this area. It acts as the underwriter and/or the agent in issuing those securities to the public or other market.

These are the big areas of accounting and finance, and, depending on what interests you, you may have to watch my video on this to learn more. What do you want to do when you grow up?