Why Accounting is considered as the ‘Language of Business’?

TallyDekho
3 min readNov 30, 2020

Hey, business folks out there! TallyDekho is all set to serve the weekly business reading for its valuable readers. Since long from ancient times, accounting holds a dominant position in the business context. However, the way accounting went on thereof, has changed over time with the dynamic business world, but its importance has eventually increased so far. In today’s blog, we’ll discuss what accounting actually is, its major elements, and why it’s considered the language of business.

What is Accounting in the context of Business?

There is no business that doesn’t include money and where there is the involvement of money, accounting has to be performed anyway.

Thus, how business is going on and how it’s performing, everything is indicated through financial statements and that financial information and is interpreted by the managers and therefore, used as the language of business.

Key objects of accounting in business

  • To systematically arrange and record the business transactions
  • To perform a better analysis of financial data & information
  • To avoid any kind of personal judgment in the accounts
  • To facilitate the easy assessment of the financial position of the enterprise
  • To examine if the business concern is going fine or not
  • To keep a balance between the overall assets and liabilities
  • To regulate the financial conduct of the business

Major elements of accounting

The entire accounting system revolves around three major elements discussed below:

Significance of Accounting in Business

The gameplay of financial data and information is all for what the accounting is done for. Thus, it plays a major role in the normal conduct of business. Let’s see some of the major points of its significance.

Helps in understanding the weaknesses and strengths of the business

A well-established accounting system is the one that helps the business managers to know where the business is lacking and what strengths the business possesses. This way accounting helps in creating a sink in all the aspects of the business.

Creating a balance between assets and liabilities

The other important point of significance is that it creates a sink and balance between the assets and liabilities of the business. Too many liabilities can be troublesome and too many idle assets are also not preferable, thus, there should be a balance of both.

Lessen the tendency of window dressing

A good and sound accounting system not only provides accurate accounting information but also lessens the tendency of any kind of personal judgment and window dressing.

Provides a base for business performance analysis

Accounting of financial statements eases the business process and also provides a base for analyzing business performance and then managers could be able to take corrective measures.

Complete record of cash inflows and outflows

It also tells the business managers about the cash inflows and outflows, so that proper and adequate cash could be maintained and liquidity could be restored.

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