Accounting: The Language Of Business

Accounting is about recording the effects of business transactions, conditions and other events under the double entry system of bookkeeping. Notice that it is the effects of the transactions, conditions and other events that are being recorded. A simple activity such as buying has an effect on the business: it results in goods being received by the entity and ownership being claimed. At the same time it results in the entity giving up cash or incurring a liability as would be the case if the seller offers credit to the customer.

ACCOUNTING AS THE LANGUAGE OF BUSINESS

Being the language of business accounting must represent the effects of business activities in terms that can be understood by users of accounting information. As a language it requires a grammar, vocabulary and forms of communication to its audience. In this course you will learn about the grammar of accounting - rules about how to represent business transactions, conditions and other events in financial terms using the principles of accounting and the technique of bookkeeping by double entry.

In the course of gaining this knowledge and skills you will also learn the vocabulary of accounting. It is essential that you pay careful attention to this as effective communication in accounting, as in any language, requires accurate use of vocabulary. To underscore this point a glossary is given at the end of this chapter. You are strongly advised to learn it well. In later courses you will learn about the forms of communication at higher levels both internally and externally (e.g. through a full set of financials statements and notes to the accounts). In this course you will learn how the entity uses documents to communicate internally and externally, and how external parties communicate with the entity through basic forms such as bank statements and suppliers' invoices and statements.