Why is Accounting Called the Language of Business?

Accounting is often referred to as “the language of business” by industry experts and educators. This phrase was widely circulated by Warren Buffett in a 2015 CNBC interview, but the concept has been shared by business professionals and accountants for decades. Exactly why is accounting called the language of business?

In short, it’s because professional accounting services communicate essential financial information about individuals or businesses. Accounting professionals use their accounting and bookkeeping services to keep company stakeholders, such as management or investors, up to date on both what’s currently happening in their organization and what will likely happen in the future. Accounting serves as the key, or language, to helping businesses understand their performance and position in the marketplace.

That’s the short answer to “why is accounting called the language of business?” However, the true answer tends to get a bit more complex the more you dive into the concepts. In this article, we’ve covered the top 4 reasons behind why accounting is considered the most important communication tool businesses can leverage for their financial welfare.

Accounting and Bookkeeping Services All Speak the Same Language

First and foremost, as stated by Warren Buffett in his 2015 CNBC interview

“Accounting is the language of business, and you have to be as comfortable with that as you are with your own native language to really evaluate businesses … but you really have to understand what can be done with accounting when it gives you correct answers and when it gives you wrong answers.”

One clear answer to pondering why is accounting the language of business is the fact that the terms, values, and conditions used by business and tax accountants remain the same regardless of industry or location. So, it doesn’t matter if an organization is working with a Denver accountant or a firm in the heart of Tokyo. Accounting is a global language that, once understood, can always be leveraged by an organization’s stakeholder.

Financial Statements Paint a Clear Picture

Professional accounting services compile financial data and record keeping to present companies with accurate, digestible financial statements. Though the information contained in those statements may differ depending on the business and its services, the majority of financial statements prepared by business and tax accountants contains the following:

• Revenue
• Costs of goods sold
• Taxes
• Cash
• Marketable securities
• Inventory
• Short-term and long-term debt
• Accounts receivable
• Accounts payable
• Cash flows from investing, operating, and financing activities

Armed with the information above, organization leaders and investors are better able to understand their current assets, liabilities, and revenues. And over time, financial statements provide stakeholders with historical data on their performance and growth.

Professional Accounting Services Influence Key Business Decisions

Accounting and bookkeeping services not only present data in a standardized way, but they also help businesses make informed investment decisions, operations decisions, and financing moves. It gives businesses the information they need to make informed decisions for not only the present, but for the future.

Projections and Budgeting for the Future

As stated above, the information that professional accounting services provide businesses gives them the insight they need to accurately budget for the future. Business owners can compare the universal financial language presented by accountants to make projections for growth over time. Key stakeholders can also use recommendations provided by accounting professionals to cut extraneous costs and consolidate processes, improving business efficiency over time.

Accountants Keep Business Within Laws and Regulations

Most businesses, both large and small, choose to bring on professional accounting services to ensure their business remains compliant with both state and federal laws. This means key stakeholders can rest assured they’re making the right moves while also dedicating more time and energy toward growing their organizations.

What laws and regulations should businesses abide by when it comes to financial reporting and data gathering? Well, accounting standards and principles have been established by professional organizations such as the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). These organizations provide a basis for compliance that clearly lay out reporting requirements that professional accounting services adhere to. These standards and rules help ensure that financial information is accurate, reliable, and comparable across different companies and industries.

There are a slew of compliance standards that companies must follow, and they tend to differ by industry. However, here are the most common compliance standards in accounting:

• Generally Accepted Accounting Principles (GAAP): GAAP is the set of guidelines and rules that companies in the U.S. must follow when preparing their financial statements.
• International Financial Reporting Standards (IFRS): The IFRS is a set of accounting standards used in over 150 countries worldwide. They were developed by the International Accounting Standards Board (IASB).
• The Foreign Corrupt Practices Act (FCPA): FCPA is a federal law that makes it unlawful for U.S. businesses or individuals to offer, pay, or promise to pay money or anything of value to any foreign official for the business gains.
• Sarbanes-Oxley Act (SOX): SOX is a federal law passed in 2002 that requires public companies to establish internal controls and procedures for financial reporting. It also requires companies to have their financial statements audited by an independent auditor.
• The Anti-Money Laundering (AML) Laws: AML laws are designed to detect and report on suspicious activity of businesses. Its goal is to prevent money laundering and terrorist financing, like securities fraud and market manipulation.
• The Dodd-Frank Wall Street Reform and Consumer Protection Act: This act was introduced in 2009 to Congress and is a federal law that looks to protect consumers from financial fraud. It also aims to increase transparency in financial markets.
• The Basel III Accord: Basel III is an internationally agreed upon regulatory framework for banks. It aims to improve the regulation, supervision, and risk management of banks across the globe.

Why is Accounting Called the Language of Business? Because it Tells a Story

Accounting and bookkeeping services keep organizations compliant with laws and regulations, help organizations budget for the future, and provide key stakeholders with a clear understanding of their business’s financial performance. They do all of that while also conveying an easy-to-understand story that only grows richer and more comprehensive with time.

Accountants are like storytellers, and their financial recordkeeping are their storybooks. These stories describe how a company is performing financially. When key investors and executives discuss the wellbeing of their businesses, they usually speak in reference to their fiscal statements. Things like liabilities, debt, revenue, and cash flow are among the aspects of financial documents that everyone needs to be able to understand to facilitate clear communication in business.

4Corner Professional Accounting Services in Denver, CO

4Corner Business Services is Denver’s answer to professional accounting and bookkeeping services. 4Corner’s team of experienced experts provide you with the accounting and bookkeeping services you need to make critical decisions. In addition to providing stellar Denver accountants and bookkeeping services, 4Corner offers payroll help, support in choosing & using accounting software, professional tax accountant services, and business financial consulting.

We can provide you with a Denver accountant who speaks a language you can easily interpret and understand. We supply you with all the accounting and bookkeeping services you need so you can better understand your business’s finances and maximize your profit potential. At 4Corner Business Services, we are the experts who help you understand what financial services you need. We address all your accounting needs so you can focus on the other important aspects that come with running a business. We take care of compliance, financial record keeping, and invaluable business insights. In addition, we help you budget and track annual business revenue, giving you invaluable insight into how your business is currently performing and how it is projected to perform.

If you have any additional questions, feel free to contact us at 4Corner Business Services. You can set up a meeting with Phil Zavala, founder of 4Corner, to get you on the right track. Work with a Denver accountant who can set you on the right path toward success.