Why is accounting often referred to as the "language of business"?


Quick 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.

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Full Answer

According to New Charter University, the stakeholders in a business are all those who are directly affected by the business' activities, including investors, managers and owners. The primary purpose of accounting is to provide the stakeholders with the information needed to make intelligent decisions about the running of the business.

As New Charter University points out, some of the information available through a look at a company's accounts is the profit or loss incurred by the business during the covered accounting period, the worth of the company, its debt load and the tax burden that the company faces. By looking at this information, management can determine which changes to make in business operations that are most likely to lead to greater profit. Some of the more common changes may include price changes, financing options, or whether to drop existing product lines or carry new ones.

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