Accounting: Language of Business

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Accounting can be defined in various ways. Some regard it as book keeping, while others regard it merely as the process of measuring alone. For a business or organisation to communicate its results and position to stakeholders, it needs a language that is understood by all in common. Hence, accounting has come to be known as the "language of business" The American Accounting Association define accounting as follows: "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information! This definition is a good place to start as it gives us an insight as to the functions it entails; 1. It suggests that accounting is about providing information to others. Accounting information is economic information - it relates to the financial or economic activities of the business or organisation. 2. Accounting information needs to be identified and measured. This is done based on a system of accounting known as double-entry bookkeeping. The accounting system identifies and records "accounting transactions". 3. The "measurement" of accounting information is not a straight-forward process. it involves making judgements about the value of assets owned by a business or liabilities owed by a business. it is also about accurately measuring how much profit or loss has been made by a business in a particular period. As we will see, the measurement of accounting information often requires subjective judgement to come to a conclusion 4. The definition identifies the need for accounting information to be communicated. The way in which this communication is achieved may vary. There are several forms of accounting communication (e.g. annual report and accounts). The communication need is about understanding who needs the accounting information, and what they need to know! Accounting information is communicated using "financial statements"

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