Economics, finance and accounting tend to get mixed up because each involves money-related information.
The definitions of finance, accounting and economics often get confused because each discipline handles money. To understand how these areas differ, it is necessary to examine the principles, procedures and areas of business they cover. Accounting, economics and finance differ mainly in the sense that, while economics deals with assumptions, accounting and finance deal primarily with facts.
Economics
Economics, as defined by diffen.com, studies the management of goods and services. This includes the production and consumption of these services and goods and the factors affecting them. It seeks to explain how economies work and interact with one another in order to improve how businesses function. Economics can be divided into two areas of study. Microeconomics is focused at the firm level and studies the behavior and affect on the economy of businesses and individual consumers. Macroeconomics analyzes the entire economy, including factors such as employment and productivity.
Accounting
Accounting is the preparation of records or keeping of accounts, including measuring and interpreting financial statements. Essentially, accounting records and assesses a business or individual's financial activities. Financial transactions, such as revenue, salaries and money spent and earned, is managed through bookkeeping. Accounting can be divided up into several categories, such as managerial, tax accounting and financial reporting. Accounting provides information, such as variable cost information, that can be used in economic analyses.
Finance
Finance is concerned with the control and management of assets and investments, the study of money and business, or managerial, finance, which is the management of the financial firm itself. Finance analyzes how finances are handled and manages money in situations such as borrowing. Personal finance, or the finances of families and individuals, has to do with issues such as credit cards, taxes, inheritances and household expenses. Finance is essentially a subset of economics that considers the risks, time and cash at hand involved in lending and saving funds.
Important Differences
While accounting, economics and finance are different, it is necessary to remember that these disciplines cannot function independently. As noted above, finance itself is a subset of economics that is focused on money-related information, while financial management needs the information accounting generates. The principles of each are different as well; finance makes decisions according to recorded information, economics analyzes those decisions and accounting makes the actual records of the information. Lastly, while economics is based upon assumptions, finance and accounting are based upon facts.
