Accounting as the ‘Language of Business’

Accounting is often called the “Language of business.” It is a means of communicating information about a business. Its responsibility is applying a thorough knowledge of the theory of accounting, that is, generally accepted principles of accounting to the practical field of business in order that income and financial position may be stated fairly.

Accounting is the analysis and interpretation of book­keeping records. It includes not only maintenance of accounting records but also the preparation of financial and economical information which involves the measurement of transaction and other events pertaining to a business.

To operate a business profitably and to stay solvent, the profitability and solvency of a business should be measured at regular intervals. For that, it is essential to know whether a business is earning sufficient profits or incurring losses and it has sufficient money to pay off debts. Accounting provides all these pieces of information which enable the management to guide the business on a profitable and solvent course.

After analyzing properly the information supplied by the accounting statements, the users of the same take decisions for future activities. Since accounting supplies the necessary information, it performs, in fact, a service function and, at the same time, it is used to represent economic position of an entity. Therefore, it becomes clear that keeping of accounts is not the primary objective of a person or an entity.

On the contrary, the primary objective is to take decision on the basis of financial facts presented by accounting statements. Thus, the understanding of accounts is not the basic objective; it only helps to realize a specific objective. As such, accounting is not an end in itself but a means to an end.

We express ourselves through our language. Similarly, the results of the activities are expressed through accounting with the help of financial statements. Accounting measures the performances of the business, that is, profitability and financial position. Thus, the language of accounting expresses the whole story of the undertaking through the various processes of accounting. The progress of the firm can easily be compared and seen with the help of various accounting data.

Yuji Ijiri, observes “As the language of business, accounting has many things in common with other languages. The various business activities of a firm are reported in accounting statements using accounting language, just as news events are reported in newspapers, in English or another Language.

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Nitish is a Finance tips author of several publications of Insurance and experiences in life. he is a regular contributor to online article sites on the topics of Banking allover the world.

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