Understanding Finance, Economics, & Accounting

In Ethiopia, in most government offices and institutions, public enterprises and private sectors, Accounting and Finance have been considered synonymous. In almost all Offices, Institutions and Organizations, Accounting or Accounts Department has named and called Finance Department. Almost all management and employees know that Accounting or Accounting Department and Finance Department are the same. If you try to explain them their difference, they consider it something odd or it is unfamiliar practice to them.

Surprisingly, in Ethiopia financial institutions, the practice is the same and they do not give ear to you if you have asked them why they call it like that and need to differentiate the two departments as well as have their own functional description that are very important as financial institutions management funds of the public. As liquidity is the life blood of financial institutions, finance is crucial to differentiate it from accounting.

Unluckily, Addis Ababa University, Faculty of Business Economics started to giving Bachelor Degree in Accounting and Finance for my batch in 2005 without giving them adequate Finance Courses by swiftly changing the Accounting Bachelor Degree name. If I have not forgotten it, they took three courses in Finance by Graduate Assistants lecturers who have graduated Bachelor Accounting Degree with Great Distinction from the same University. They have continued the same practice for the Master Degree program except have more educated and experienced academic staff local and abroad. Unfortunately, almost all-new generation universities benchmarked and copied this practice and they are doing it still now as far as I know.

Both the academic arena and the practices have gone hand in hand. It is double challenge to correct the problem. Moreover, the degree and master graduates of this field are in top management in both academics and industries. The objective of this article is to make clear this confusion and save the next generation from ambiguity including my generation or batches.

My KDI School Professor told me the difference between Accounting, Economics and Finance surprisingly based on salary and benefits of the professors. In Western Universities, Finance Professors are compensated many folds than economic professor, mathematics professor and statistics professor. This is so as the finance professorship requires more efforts than economics professor or mathematics professor or statistics professor. In other words, finance professor has to read and prepare on three fields of studies of Economics, Mathematics and Statistics. Accounting field role is to feed financial data to Finance Field. Nothing more and nothing less. Hence, Finance is a hybrid of Economic theories, financial mathematics, and statistics for finance. These days, behavioral science is also being added to the field of Finance in developed countries.

Making things clear and correct the misconceptions in both Academic Arena and the Practicing Industries are not an option but a must to do in 21st century digital era. The writer believes that coming up with such kind of segregation is the starting point to make things clear and harvest the fruits of Finance Field of Study and developing competent professionals in the field of study and industry practice

The high-level classification of finance by their categories are personal finance (household finance), sole proprietor business finance (mixed personal and business accounts), SME Finance, Large Enterprise Finance, Corporate Finance and Public Finance (Regional and Federal Government as well as its Agencies).

Economics is clear that divided into microeconomics and macroeconomics. From personal economics to businesses to industry to country level as well as continental and global level economics is familiar currently.

Accounting as a field of study is divided into financial accounting, cost or managerial accounting, external and internal auditing as well as accounting information system. Tax accounting though it is part of the financial accounting, it is studied alone as it is very important. Accounting includes from journalizing to posting to trial balance preparation to adjustment to preparation of consolidated financial information to assuring this process and internal control systems as well as cost accounting.