Accounting As The Language of Business
Man expresses how he feels in written and verbal form through language, similarly, various business organization express and present their financial information through accounting statements.
Warren Buffett is credited for being the first person to say accounting is the language of business, back in 2014. He went on to say that accounting in some ways is literally like a foreign language that has to be learned before one can understand and communicate with it. Just like French, Yoruba or Hebrew to an English speaker, there are many terms in accounting that sound foreign when you first come across them: Some of them are fixed assets, retained earnings, accounts receivable, etc.
One of the advantage of learning the language is that it can be spoken everywhere in the world. Any income statement or balance sheet prepared according to the United States' generally accepted accounting principles (GAAP) will be readable and understandable by anyone from another country who understands the basics of GAAP.
Accounting is referred to as a language of business because it's both useful and universal. For instance, a company had $1 million in sales revenue, while the cost of goods sold (CGS) or cost of sales is $300,000, the gross profit is $700,000. The add up illustrated above is the same all over the world irrespective of which nation you work in or whether you speak English, Portuguese, Arabic, Hausa or Farsi. This is the reason why investors and executives around the world understand income, expenses and company value the same way.
Although accounting is the language of business, many business executives don't speak or understand it. That's the main reason they pay accountants to explain it to them in plain English
In language, efforts are made to express a particular feeling using words one after another.
Similarly, in accounting, financial transactions are recorded in different books of accounts and will be used to prepare financial statements. The various financial information will be communicated to concerned parties like owners, employees, management, investors, buyers, sellers etc. to enable them make appropriate decision.
Accounting is important in every business, both large and small business because it provides all information about past events, current activities and future possibilities of a business organization.
From these accounts, statements, and reports, parties concerned can evaluate their success-failure, profit and loss, asset and liability, financial solvency/insolvency etc.
Of course, one can understand this financial information by having sound command over accounting language.
These financial statements are without meaning to those who do not have knowledge of accounting (either basic or advanced), in the same way as a newspaper is an ordinary paper in the hands of an illiterate person.
In view of this, it is fair to say accounting functions like a language of a business. No business can survive without accounting, some business choose to employ accountant or bookkeeper to keep their books while some choose to outsource it. One may think it is not suitable to compare Accounting with language but actually, it is not so.
For instance, Shorthand is a language but the persons who are ignorant of it cannot understand this old symbolic language. Similarly, it is logical to say accounting is a language of business.
Accounting is meaningless to those who are ignorant of the discipline. No language in the world is generally accepted by everyone.
Similarly, accounting language also is not understandable to all, but to only those who are in the accounting field or users of accounting information.