The Story of Accounting: How to Speak the Language of Business
Published on August 30, 2017 by Broadview University
Although it is rooted in numbers, figures, and equations, accounting has become known as the language of business. That’s because finances can tell a company’s story.
This notion of “accounting is the language of business” is most often attributed to famed investor Warren Buffett. He explained in a 2014 CNBC interview, “It’s a language all its own. Getting comfortable in a foreign language takes a little experience, a little study, early on, but it pays off big later on.”
Referring to accounting’s storytelling nature has helped educators and mentors explain to students and employees why understanding basic business principles is important. For example, being able to ask the right questions or justify business decisions depends on a command of reading financial statements. In business, we use accounting to reflect on our past, interpret our current conditions and to help us decide on the future.
Investopedia’s Andrew Beattie explained how this “language” dates back to the days of the barter system, where traders kept ledgers. These early records included narrative descriptions and terms of the trade rather than the familiar columns of numbers we see today. Only later, once currencies were introduced, did numbers come into the equation.
According to Investopedia, one of the earliest bookkeeping textbooks was published in 1494. The author, Italian monk Luca Pacioli, explained the benefits of the double-entry (debits and credits) method. Pacioli’s system was the beginning of unifying processes, perhaps the earliest writings of the language we speak today. At first, though, this method was used just to keep merchants aware of their own practices and financial well-being. Later, when businesses grew and needed to communicate their value to others, the profession of accounting was born.
A Modern Language
Accounting is not just a language used internally. Rather, it’s a universal system, understood by businesses around the globe. This means we can share externally, too. For example, we share financial reports, such as balance sheets, with potential investors in order to find new capital. We can also share successes (or challenges) with current shareholders. In the nonprofit world, financial records are also shared among a donor base. Look at the investor or donor relations page of any corporate website and you will likely find financial statements and annual reports.
Aside from its storytelling aspect, accounting can be likened to a language for other reasons. For instance, it has its own glossary: a list of words and definitions unique to the field, from accruals to zero-based budgeting.
Since the days of trading sheep and grain, financial practices have evolved. But, from the beginning, it’s always been about communicating. If you know the language of accounting, it you can be more fluent in business.
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