Accounting is the language of business because it helps people, both internal and external, to understand what is happening inside of s business. Just as language is universal to people, so is accounting in business. Regardless of where in the world a business is located, financial information is interpreted in the same way.Know More
Experts use accounting information to assess how a business is doing. Financial documents, such as balance sheets, expense reports and audits, allow accountants to follow money and transactions. They use the data found in accounting documents to determine whether a business is financially solvent.
Investors use the information to determine whether they want to invest in a business. Accounting documents allow them to measure performance using ratios, such as inventory turnover, liquidity and stock performance. Without the knowledge of basic accounting principles, it is impossible to make smart decisions about investing.
Even governments use accounting to understand what businesses are doing with their money. Each year, corporations are responsible for paying taxes. The Internal Revenue Service (IRS) uses accounting methods to determine the right amount of taxes they must pay. If the IRS desires to find out more about a business and whether or not its accounting documents are accurate, they conduct an audit.Learn more about Accounting
Accrual accounting provides an accurate way of matching business income and expenses to the correct time periods, explains Nolo. Businesses with sales of over $5 million per year or inventories exceeding $1 million are legally required to use accrual accounting.Full Answer >
A statement of owner's equity is a financial document that shows the value of a business at the end of an accounting cycle. It is one of the end-of-period accounting records a business is required to complete.Full Answer >
External users of accounting information are parties outside the operation of a business who use its accounting and financial information in making important decisions. Examples include customers, investors, tax authorities, creditors and regulatory authorities. Since these users do not have direct access to accounting information, they are given access to records by the business in the form of financial statements.Full Answer >
Accounting is known as the "language of business" because it communicates the financial state of a business clearly and concisely to those who understand accounting standards, according to New Charter University. With an understanding of accounting, stakeholders in a business can see anything from the overall financial status of the company to the smallest transactional details.Full Answer >