What Exactly is Business Accounting?

Business accounting is how businesses keep track of their financial information. They do it by recording, analyzing, and interpreting a business’s financial data. They do it, so they can keep track of finances and make solid business decisions.

Depending on the size of company, business accounting by a single person, a team, or an accounting firm. Accountants evaluate the business’s financial health and advise businesses of their compliance obligations.

So, why is accounting called the language of business? Just like any other language, accounting helps people understand what is going on inside their business. This can help entrepreneurs, business owners and finance managers make profitable decisions.

It’s important to start with a solid understanding of the accounting system, how it works, and how the financial statements all fit together.

Within any business, the accounting language is crucial to understand. At the same time, not many people can understand it well.

Companies generate three key financial statements:

• Balance sheet
• Cash flow statement
• Income statement

Within each of these statements, there is a long list of terms that need to be understood and considered. There are some excellent free courses available online that can help you learn the language of accounting.

Essentially, businesses need to keep track of their overall financial position. That includes tracking expenses, revenues, capital, and other important information. The rules-based system of accounting allows companies to track these items and communicate the results to various stakeholders.

Photo Credit: Accounting Blog

Now let’s examine the six specific reasons why accounting is the language of business.

Accounting is a Standard Mean of Communication Across the Globe

Accounting is seen as a language that is universally understood. It is an inherent part of every business’s life. Numbers work in the same way, no matter where you are based in the world.

Studying accounting is a task that can be compared to becoming familiar with a new foreign language. At the same time, the ever-changing nature of business can make this language seem quite complicated. Accounting is regularly changing to integrate unique business situations and provide better ways to communicate the business information.

Accounting takes a pragmatic approach by being standardized and regulated. That allows anyone interested in accounting to become proficient within a reasonable time.

For example, to understand a balance sheet, you won’t need a professional interpreter. That’s why both small and large (and both domestic and global) business deals and mergers can be carried out.

While an investor might not be proficient in the complex details of a specific industry, they can still decide if a business can be a profitable investment once they go through the company’s financial statements.

Accounting Has Historically Evolved

Accounting has existed for a long long time. Since then, it went through a transformation similar to the changes that different languages have gone through. That happened in response to the ever-changing financial and social needs of any society.

People from various civilizations have developed many tools to keep life going, including the way they keep records of their businesses. The discovery of ancient tablets that detailed wages around 600 BC in Babylonia clearly shows that there was a need for accurate accounting and business communication for a very long time.

Accounting Tells a Story

Accounting and financial reports are like storybooks that illustrate how a company is doing financially. When the main decision makers and company executives consider their organization’s current state and future prospects, they usually discuss their financial statements.

Debt, liabilities, earnings, expenses are among the financial documents that everyone needs to understand to simplify communication in business.

Involves Relevant Business Terminologies

All languages have specific terms. Accounting is not an exception to this rule. People who occupy key financial positions need to learn how to deliver important information by using accounting as a language. They need to learn the specific terms and their meanings.

The key accounting terms such as general ledger and balance sheets are used again and again within the business world. However, some people do not understand these terms since they are not familiar with this specific language.

If your job somehow involves organization’s finances and making key business decisions, you need to know what the key financial statements look like. You also need to understand the key components of these documents, how to read them and how to interpret them.

Utilized Across Other Business Occupations

Finance is another crucial means of business communication. How does finance work? You take the data and information that are provided by accounting and interpret it to make business decisions.

Building a career in finance requires that you don’t just translate the accounting language, but you also ask good questions that can uncover the meaning and implication of specific numbers.

For example, overhead is a key expense for many companies. At the same time, this expense may be distributed across various products or it can be allocated as one large cost. Understanding what numbers actually mean is the key factor in having meaningful business conversations.

Besides the languages of accounting and finance, economics also provides a way to communicate in a business environment. A A precise knowledge of the concepts of supply and demand (for example) is crucial for pricing products/services and planning the supply/demand for them.

When you combine the languages of finance, accounting and economics, you make it possible to evaluate the costs, cash flow, prices and other key business data. Then you can make an informed and profitable choice. Business circumstances are changing all the time. Understanding the different languages that are used in business is necessary to make the best possible business decisions.

Accounting Language Can Describe Business In-Depth

Accounting’s main responsibility is to apply knowledge of its principles to the specific business situations. It’s done to ensure that the financial position and profit/loss of companies are clearly stated. It is all about making sense of bookkeeping records. Besides maintaining bookkeeping records, accounting prepares economic information that measures activities that influence a business.

Operating a business profitably means measuring solvency and profitability regularly. To achieve this, it is essential to know if a business makes profits/losses and whether it has sufficient funds to be debt-free.

Accounting is the business language that provides all this important information. It makes it possible for managers and executives to lead a business towards profitable and sustainable path. Once the information has been evaluated using the financial statements,they can make decisions for future tasks.

Final Thoughts On Why Accounting Is Called The Language Of Business

The outcome of business activities is expressed through the language of accounting, using various financial statements. Since accounting essentially measures business performance, it tells us a complete story of the business using different accounting processes.

And just like other languages, it follows very specific rules to avoid misunderstanding or sending the wrong message. However, accounting is also flexible enough to adjust to ever-changing business realities.

You are probably wondering – aren’t operations, marketing, operations, IT, human resources, and other business areas are important as well? They definitely are. But here is the main difference: they are all part of execution, rather than the core decision-making process.

For example, having a great idea for a marketing campaign shouldn’t guide the decision to make a new product or service. Marketing should play a a significant role in implementing the plan. But only when the decision was made based on financial, accounting, and economic foundations.

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