Accounting Is The Language of Business Why?

Well Said "Accounting Is The Language Of Business"  (Warren Buffet)

Because, Accounting is the way through which the useful information of a business is communicated to concerned parties, e.g., owners, directors, managers, employers, employees, government, customers, creditors, investors, etc. This information may be related to financial, cost, managerial, etc. For example financial information is useful for Users of Financial Information / Statements, cost information is useful for producers, managerial information is useful for management of the business. Without accounting, we are unable to collect financial, cost and managerial information.

Accounting has Generally Accepted Accounting Principles (GAAP) which are universally applicable and acceptable in every country of the world. These standards describe the basis for measuring, recognition, recordings, etc., of different kinds of accounts in the Books of Accounts.

It maintains proper records of books of accounts of a business (whether it is a Sole Proprietorship, Partnership, Company or Corporation Businesses) in order to prepare Financial Statements and to provide useful financial information of the business.

It helps us to better know the Financial Performance (Net Income or Net Profit calculated through Income Statement or Trading & Profit and Loss Account), Financial Position (Balance Sheet or Statement of Financial Position), Movements of Cash Flows (Cash Flows Statement) and changes in equity (Statement of Retained Earnings).

A business is established to earn profit and to earn profit, we must know about our sources of revenues and expenses incurred in earning these revenues and for the daily working of the business operations. All of these financial information is obtained from Income Statement prepared under accounting system.

We must also know what are the resources (Assets) and what are the Liabilities & Equity of a business to maintain a balance among assets, liabilities and equity. Accounting tells us this financial information through Balance Sheet.

How much cash a business has in hand to meet daily expenses to work smoothly. How much cash is invested and financed to earn profits through future profitable projects. It all knows from Statement of Cash Flows.

Cost Accounting gives us report about cost of goods manufactured and sold, internal management system, etc.

Managerial Accounting helps us in deciding how much earnings is retained in the business and how much is utilized.

So, we can say that Accounting is the language of business that communicates financial information, cost information, managerial information, etc., to concerned parties. In fact, without accounting a business can not be run successfully at all as it is a way of communication to all concerned parties.