Accounting, the Language of Business

Accounting is said to be the language of business. Accounting provides a standardized framework to communicate an economic entity's financial status or state at a particular point in time and also its financial performance between two points in time. Standardized accounting enables stakeholders that have some interest in an economic entity to communicate in a manner that allows these stakeholders to understand one another, enabling effective communication. 

People often use the terms “bookkeeping” and “accounting” interchangeably .  But bookkeeping and accounting are two different things.  Here is the difference between bookkeeping and accounting:

  • Bookkeeping is a mechanical process of recording transactions.  Bookkeeping is an action; it is a record keeping process.
  • Accounting is about determining what constitutes the transactions that are then recorded per the bookkeeping process.  Accounting is the language used by bookkeeping. Accounting is a communications tool. Accounting is a classification system.  There are different financial accounting and reporting schemes such as US GAAP and IFRS.

Luca Pacioli documented double entry bookkeeping 1494 in his book Summa de arithmetica.  Because the documentation is in the for of a book then only humans can interact with that book to understand double entry bookkeeping.

Double entry bookkeeping is a mathematical model.  Computers work based on the rules of mathematics.  Computers and double entry bookkeeping are a match made in heaven.

If accounting is a language, that that language should have terms.  I asked Microsoft Copilot to give me the top 100 terms used in the language of accounting and this is the answer I received: (The exact prompt was, "What are the top 100 terms used in the language of accounting?")
  • Core Concepts
    • Accounting
    • Bookkeeping
    • Double-entry
    • Debit
    • Credit
    • Journal
    • Ledger
    • Trial Balance
    • Chart of Accounts
    • Posting
  • Financial Statements
    • Balance Sheet
    • Income Statement
    • Cash Flow Statement
    • Statement of Retained Earnings
    • Notes to Financial Statements
    • Financial Reporting
    • Consolidated Statements
    • Comparative Statements
    • Interim Statements
    • Final Accounts
  • Assets & Liabilities
    • Asset
    • Liability
    • Current Asset
    • Fixed Asset
    • Intangible Asset
    • Tangible Asset
    • Current Liability
    • Long-term Liability
    • Contingent Liability
    • Net Assets
  • Equity & Capital
    • Equity
    • Owner’s Equity
    • Shareholder’s Equity
    • Capital
    • Retained Earnings
    • Contributed Capital
    • Paid-in Capital
    • Drawings
    • Dividends
    • Stock
  • Revenue & Expenses
    • Revenue
    • Expense
    • Operating Income
    • Net Income
    • Gross Profit
    • Cost of Goods Sold (COGS)
    • Direct Expenses
    • Indirect Expenses
    • Overhead
    • Profit Margin
  • Valuation & Depreciation
    • Depreciation
    • Amortization
    • Depletion
    • Salvage Value
    • Useful Life
    • Accumulated Depreciation
    • Straight-line Method
    • Declining Balance Method
    • Units of Production Method
    • Revaluation
  • Transactions & Adjustments
    • Accrual
    • Prepaid Expense
    • Unearned Revenue
    • Accounts Receivable
    • Accounts Payable
    • Notes Receivable
    • Notes Payable
    • Contra Account
    • Compound Entry
    • Adjusting Entry
  • Conceptual Framework
    • Matching Principle
    • Revenue Recognition
    • Going Concern
    • Materiality
    • Conservatism
    • Consistency
    • Economic Entity
    • Time Period Assumption
    • Historical Cost
    • Full Disclosure
  • Regulatory & Standards
    • GAAP (Generally Accepted Accounting Principles)
    • IFRS (International Financial Reporting Standards)
    • FASB (Financial Accounting Standards Board)
    • IASB (International Accounting Standards Board)
    • SEC (Securities and Exchange Commission)
    • PCAOB (Public Company Accounting Oversight Board)
    • Audit
    • Internal Control
    • Compliance
    • Tax Accounting
  • Specialized Terms
    • Working Capital
    • Cash Equivalents
    • Bank Reconciliation
    • Suspense Account
    • Petty Cash
    • Source Document
    • Voucher
    • Credit Note
    • Debit Note
    • Reconciliation
I asked Copilot to generate an OWL ontology using the Turtle format for those 100 essential terms above and the syntax was correct per this validator. I was able to visualize that ontology using this visualization tool.

XBRL is a mechanism, a medium, for providing information that is interpretable by a machine based process.  Using XBRL, the language of accounting can be represented in machine-readable form.

I think I can do better than Microsoft CoPilot...and I think I will try. (Accounting Terms Demystified)


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