Chapter 1, Problem 1DQ

The text states that accounting is the "language of business." What does this mean? Why is it important to know the language?

To determine

Explain the meaning of the statement “Accounting is the language of business.”, and explain the importance of being acquainted with the language of the business.

Explanation of Solution

Accounting: Accounting is a system, or a process of collecting and organizing economic transactions, analyzing and summarizing the transactions into reports, and communicating the relevant information to the users.

Business: A business is an entity which is created by one or more persons, governed by the state law, generating value by exchanging goods and services to the customers for money.

Meaning of the statement: The activities and transactions of a business are translated and communicated through a language referred to as accounting. Accounting demonstrates and conveys the value created by a business in a structured format.

Importance of knowing the language of business: To process the economic transactions, analyze and summarize these transactions into structured reports, and communicate the value of business through these reports to the users, it is important to be acquainted with accounting, the language of business. Accounting is the scorecard of a business. Without accounting, it would be difficult for a business to understand the rules to achieve success in the competition. So, accounting enables to increase effectiveness and efficiency of the business operations.