Difference between accounting and economics

Definitions and meanings:

Accounting:

The practice of keeping a systematic record of transactions of a business, summarizing them and presenting them in meaningful manner is known as accounting. The data obtained is also used for reporting purposes.

Economics:

Economics is a study of social sciences that is related to the production, consumption and/or distribution of goods or services as well as allocation of resources of a business. It also involves the economic analysis of a business’s environment (broader and industry specific).

Difference between accounting and economics:

1. Primary focus:

Accounting is a very vast branch of business. It deals with the recording, summarizing and reporting of business transactions. The main focus of accounting in large listed companies is to prepare true and fair financial reports that are mandatory by law. Economics basically deals with the rules of supply and demand for the products and/or services of a certain business, company or industry. Its main focus is the analysis of the economic indicators of the business and business strategies in terms of products, relationship of price with the changes in supply and demand of products and services (i.e., elasticity of supply and demand) and evaluation of its respective market.

2. Field of study:

Accountants usually learn the skills that lead to recording and reporting of business transactions. They acquire knowledge about the key books of accounting, transaction recording rules (DEAD CLIC Rule of double entry bookkeeping etc.), International standards on accounting, concepts of accounting etc. An individual can get a degree in the field of accounting to work as accountant. An accountant can also pass a certain set of papers and/or acquire specific type of knowledge (varies according to different jurisdictions) to become a chartered accountant, who has specialist knowledge in the field of accounting e.g., audit and assurance, finance, banking etc. Economists learn about different economic theories like demand and supply, different market structures such as perfect competition, monopoly, oligopoly etc. to analyze the environment in which a business executes its financial dealings. Economists usually acquire business degrees in bachelors and masters in economics to pursue their career.

3. Types:

There are majorly two types of Economics – macro-economics and micro-economics. Macroeconomics deals with the macro level environment and indicators of a jurisdiction. This branch of economics may include detailed analysis of the macro-economic indicators like, politics, monetary policy, fiscal policy, legal framework etc. of a country. For a company, only those macroeconomic indicators are relevant that directly or indirectly affect its business activities. Microeconomics deals with the study of economic indicators for a certain facet, sector or industry. It may include the study of supply, demand, KPI’s (key performance indicators) or the macro-economic signals that may affect a certain sector or industry. Accounting has many branches; financial accounting which deals with financial reporting of an entity, management accounting (i.e., managerial accounting or accounting for management) which deals with the internal decision making of a company, forensic accounting which deals with the investigation of frauds and/or errors, hedge accounting which deals with the risk profiling and responses towards the forex and/or interest etc.

4. Utilization of data:

Accounting utilizes the data and information extracted by applying certain principles and concepts. These principles and concepts are necessary for every accountant to follow and if these are not complied with, such accounting information is not deemed fair or truthful. However, sometimes managers of a company intentionally misuse loopholes in accounting principles to mold the accounting results that contradicts with the real picture. Such a practice is known as creative accounting. Economics incorporates use of research work and assumptions to produce results. These assumptions may not hold true in every situation because of the changes in business environments of different industries and/or jurisdictions. The results extracted also depend upon the reliability of the assumptions used and efficacious application of relevant economic theories to the situation at hand.

5. Application:

The information extracted while accounting used for many other purposes like decision-making for investment and financing, setting an effective control environment in a company, budgeting and forecasting for future activities of business etc. On the other hand, in any organization, economics is used to identify, evaluate and explain the key drivers of supply and demand for the products or services it offers and the key indicators that affect its resources.

Accounting vs economics – comparison table:

Conclusion – accounting vs economics:

Both branches are vital for the organizations to run effectively. Economist as well as accountants play their respective roles to pave directions of development and sustainability for businesses, industries and even governments. This is the reason, these professionals are not only pivotal for commercial companies but important for different other organizations like non-governmental organizations, governmental institutes, not-for-profit organizations etc. The key capability which both of these professions incorporate in order to dispense their roles is the ability to research, evaluate and analyze real life situations by using their specialist knowledge, skills and expertise.