If you want to understand how a business is doing financially, all you have to do is examine its financial records and accounting reports. Accounting is often referred to as the language of business. It is a universal language that is understood all over the world. Regardless of the language used and the system of records keeping adopted, accounting is the universal language that transcends boundaries and barriers.
When business leaders talk about the health of a company, they typically refer to income, financial statements, expenses, debt, and liabilities, which are all components of financial documents that can be clearly understood by anyone who wants to communicate clearly in the world of business.
Accounting is the universal language that is the best way to read financial statements. As with the study of any foreign language, it takes time to get the basics of accounting and integrate them into clear understanding and proper usage. Once the basic principles of accounting are internalized, a person is already equipped with an important factor toward success in the business world.
As with other languages, accounting has its own terminology. For a person to be in key financial positions within a business, he must learn the accounting language, specifically the meaning behind unique terms to enable him to effectively and properly use them on a daily basis. Terms such as balance sheet, accrual basis, a trial balance, or a general ledger are common accounting terms that people outside of the business community hardly understand or care about. If you are a person in a business organization with key decision-making powers, you should not only be familiar with the appearance of a balance sheet but also understand its individual components, read and interpret each one of them.
Man expresses his thoughts and feelings through language, either written or verbal. Similarly, various business information is expressed or presented using accounting statements. In language, feelings are expressed using words one after another. In accounting, financial transactions are recorded in various books of accounts. Financial statements containing various financial information are communicated to the concerned individuals.
Accounting provides information about events – past, current, and future possibilities – in business. Accounting presents and communicates financial information in the form of reports and statements to concerned parties including the owners, management, employees, investors, buyers, sellers, and other business stakeholders.
The concerned parties can evaluate the success or failure, financial solvency or insolvency of the business based on these accounts. And it requires a sound command of the accounting language before anyone understands this information.
Accounting functions like a language. While some people may not agree to compare accounting with language, but for all intents and purposes, it is.
Some people may also object to describe accounting as the language of business. As with other languages, it is meaningless to people who do not understand it. A person who does not understand a foreign language will find foreign words meaningless. A set of financial statements are meaningless when viewed by a person with no knowledge of accounting.
Accounting may not be understood by all. But for people who speak the language, it is a universal one that transcends territorial boundaries.