Chapter 1, Problem 1MC

Accounting is sometimes called the “language of _____.”

A. Wall Street

B. business

C. Main Street

D. financial statements

To determine

Introduction:

Accounting is defined as the process of organizing, analyzing, and communicating the financial information which is used for the purpose of decision-making.

To choose:

The option whose language may be regarded as ‘Accounting’.

Answer to Problem 1MC

Accounting is sometimes called the “language of business .”

Explanation of Solution

Explanation for correct answer:

It helps in making decision. Most people make a decision that relies on accounting information. For example, you can take the help of accounting in order to decide whether it is better to lease or buy a vehicle. Likewise, a college graduate may also take the help of accounting in order to decide whether it is better to take a higher-paying job in a bigger city (where the cost of living is also higher) or a job in a smaller community where both the pay and cost of living may be lower.

The decisions in these scenarios would be based on factors that include both financial and nonfinancial information. For example, when deciding whether to lease or buy a vehicle, you would consider not only the monthly payments but also factors such as vehicle maintenance and reliability. The college graduate considering two job offers might weigh factors such as working hours, ease of commuting, and options for shopping and entertainment. All of these factors, both financial and nonfinancial, are relevant to the financial performance of the play.

In other words, we can say that “accounting is the language of business” because it helps in taking the decisions related with the business as you can see in the given above examples and you can also say that “accounting is the language of life.”

Explanation for incorrect answers:

a. Language of Wall Street − Wall streeters have their own language based on what they do and see every day. In other words, we can say that it’s a language based on money while accounting is called the “language of business” because it helps in making decision; most people will make a decision that relies on accounting information.

c. Language of Main Street − Accounting can never be the language of Main Street because Main Street firms helps in serving the small, individual investors by providing better services to them, while accounting helps in making decision; most people will make a decision that relies on accounting information.

d. Language of Financial Statements − Accounting can never be the language of Financial Statements because it uses both financial & non-financial information for making decisions related to the business or any other things while financial statements, which include the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows and Disclosures. These financial statements ensure the information is reliable from period to period and generally equivalent between organizations. The conventions also ensure that the information provided is both reliable and relevant to the user.