Accounting is a system or a process or a cycle that helps in the communication of certain information in any business organization. It is often known as the language of the business. Accounting is a very essential and crucial part of any business organization, government agencies, clubs, and other institutes. An accounting system is used to gather, undertake and account the information that is required by any particular organization.
Many times, Bookkeeping is referred to as the language of business. It is not possible for everyone to understand and read the language of accounts. Further, accounting is known as the business language because of the fact that the transactions of the accounting trigger the process of business tasks. The accounting transactions and the entries explain the process of business. The accounting information is helpful for the businessmen of small enterprises to know about the financial state of their own business. Following are the reasons for accounting to be known as the business language.
All the business activities of a particular enterprise or the business are collected and gathered by the use of the accounting process. Every time, a business undergoes any sort of transaction or activity is recorded by making use of the double-entry bookkeeping method of accounting. It shows all the changes and alterations in levels of assets, liabilities, expenses, revenues and other important terms. Since this is an organized and an efficient procedure and further works according to the Generally Accepted Accounting Principles (GAAP), thus, all the balances can be summed up at the end of that particular accounting year of the business.
With the help of maintaining proper and orderly accounts of a particular business, an analysis can be done every year. All the business transactions are recorded and a track is maintained in the books of the accounts of each and every activity of the business, as per the strict rules and norms of the business. This is very beneficial for the business owners as they are able to compare the performance of their own business by analyzing the current and the previous year’s financial statements. By such analyzation, the company or that particular business is able to know about its strengths and the areas where changes and improvements are required.
The financial statements of a business organization are useful as this helps in the communication between the other businesses. There are many large-scale businesses that are described or are known by the growth in the earnings, reduction in the level of the liabilities of that particular business or the company. This further, helps the potential investors and the stakeholders to judge and analyze if that business is worth making investments or not. For the small-scale business, it’s worth can be determined by the regular and consistent revenues and the earnings or a solid asset base.