Why Accounting is called language of business?

All around the world, accounting is called the language of business. It is widely used technique to relay the information related to the business. It takes upon the responsibility to administer in depth comprehension of the theory of accounting that refers to the application of general principles of accounting to the empirical day to day functioning of the business in order to exhibit the different accounts of income and expenditure fairly. It showcases the financial position of a business. Accounting is the process of evaluation and explanation of bookkeeping records.

Following points will further put light on the role of accounting in a business and also why accounting is called the language of business:

Accounting interprets bookkeeping records- accounting helps in not just evaluation but drawing inferences after evaluating the bookkeeping records and further helps in making of financial and economical information which includes quantification of business transactions and other events. In a way, accounting helps in simplifying the crude data of bookkeeping and makes it easy to comprehend by anyone.

Accounting furnishes vital information to keep the business afloat- in order to run a business successfully and earn rich dividends; it is of paramount importance to track the profitability and viability at regular intervals. To aid this cause, it is important to keep proper knowledge whether the business is earning enough profits or it is incurring losses and has enough funds to pay off the debts. All this information related to the viability of a business is furnished by accounting in order to help management form policies to keep the business profitable and solvent.

Accounting helps in deciding future course of action for a business- after the proper evaluation and interpretation of information furnished by the accounting statements, it is used by the management to take decisions related to future course of action. Accounting statements represents the economic and financial position of a business entity. Hence, keeping of accounts is not important alone but its evaluation and interpretation done by the accounting is equally important to take decisions related to the future of a business.

Accounting provides measurement yardstick for business activities- accounting is a language used to interpret business activities with the help of different financial statements like trading accounts, profit & loss accounts, balance sheet etc. Accounting provides measurement yardstick for business activities and helps in expressing the real scenario of a business holding via its different processes. The progress made by a business can easily be tracked by comparing the accounting data pertaining to different years.

Read also: 5 Simple Steps to Become a Chartered Public Accountant

Accounting helps in bringing the trust of shareholders- since shareholders sometimes put huge chunk of their money on stake by investing in a business, it becomes important for them to know whether their money is safe or not? Whether they are likely to earn dividends in the near future or not? Accounting statements provides answers to all these questions of shareholders by exhibiting the true financial position of a business and bring in the trust on the part of shareholders. It encourages the other in market to invest their money in the shares of a company.

Accounting is universal language- accounting is practised all around the world to conduct business activities. The general principles of accounting are more or less similar everywhere. This way it helps in showcasing the viability of a business to those who belong to other regions.

Accounting follows certain rules and guidelines just like any other language to interpret or express events in business- just like English or any other language, to express an event in accounting, one must follow certain rules or guidelines in order to avoid the risk of being misinterpreted or misunderstood. In order to make the comparability of two financial statements feasible it’s important that accounting is used accounting the certain rules. At the same time just like any other language, accounting as a language has been made little flexible to adapt to the changing environment.

Conclusion

Financial statements and accounting reports represents the true tale of how a business is doing financially. So, it’s not a surprise that accounting is considered the language of business. When management discuss about the health of a company, it actually refers to the financial statements. Anyone who desires to communicate and comprehend the functioning in the business world must understand the components of financial documents such as income, expenditure, debt, assets, liabilities etc. Like any other language, accounting has its own terminology. Those who hold key positions within a company must know and use the accounting language in day to day basis. The functions of accounting department prepare the ground for all the financial business communications in a company. With all the aforementioned reasons, it’s apt to say that accounting is the language of business spoken worldwide to communicate in the business world.