Thes fields of accounting and economics are often confused with each other, and indeed each enables a better understanding of the other. However, while both deal with numbers-crunching, assets, and money, accounting and economics are separate subjects with several differentiating factors. Accounting is a field that involves calculating and recording transactions of a financial nature and subsequently summarizing, analyzing and reporting them, while economics is a branch of knowledge concerned with the production, consumption, and transfer of wealth.
The Basics of Accounting
Accounting operates according to the principles of relevance, timeliness, reliability, comparability, and consistency of information or reports. Globally accepted standards are used by accountants belonging to any organization, firm, company or nation in order to facilitate a general understanding of a financial situation. It is for this reason that accounting is sometimes dubbed the "medium of communication between businesses." This communication is achieved through a key output of accounting – the financial statement, which records and showcases the performance and general financial status of an entity to all stakeholders and interested parties.
The Basics of Economics
In contrast, economics is a social science that focuses primarily on the efficient allocation and distribution of resources in order to fulfill unlimited wants. This is broadly divided into two areas of study: macroeconomics and microeconomics. Macroeconomics studies how goods and services are produced and distributed across economies, national or even international, whereas microeconomics is concerned with individual behavior regarding the use of resources such as capital, time, skills, etc. Economics attempts to understand how economies operate in relation to specific variables, such as population, resources, and technology, with the assumption that people are rational.
The Differences Between Accounting and Economics
Both accountants and economists assist businesses, industries and even national governments in strategizing and planning, making sound financial decisions and setting fiscal policies.
However, accountants concentrate mainly on bookkeeping and analyzing records of income and expenditure. They use various techniques and methods to track and analyze budgets, expenses, and revenue, and produce financial records based on the data they have analyzed. Usually covering a specific period of time, these records essentially are dealing with the financial past of an individual, company or entity to capture a current financial snapshot. The statements that accountants create can convey the state of the individual's or entity's financial affairs or situation and can be used to make recommendations or decisions. But their work essentially deals with a specific situation at a specific moment in time.
In contrast, economists are concerned with charting and interpreting financial patterns to understand economic behavior and help guide major decisions about issues such as tax and monetary policy, national debt and federal spending. As such, they often theorize and attempt to make predictions about the future and future behavior. Although economists base their analyses and projections on real-life markets, conditions, and events, their work is more abstract.
The Bottom Line
Accounting is highly specific and customized to an individual person or entity. Economics looks at the way resources, products and money itself flows within a society or country – or sometimes even between countries. Both deal with finances; both influence and impact behavior. Ultimately, however, accounting is based on a set of principles, while economics operates on certain assumptions to simplify complex situations.