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, beginning with the more fundamental notion of record keeping:

Record keeping is the most basic layer which involves the systematic, mechanical process of collecting, storing, maintaining, and organizing source documents that capture information about events, activities, and transactions. It does not involve applying accounting rules; record keeping is about preserving evidence so later steps can occur. Think of it as the data capture function.
Bookkeeping is a mechanical process of recording financial transactions into a structured system of journals and ledgers. 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 frameworks or "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
Lead schedule

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)

Axiomatization is the process of establishing statements which make up fundamental principles, or axioms, from which all other statements (theorems) within a particular area of knowledge can be formally derived through logical deduction. This rigorous approach provides a structured framework for a subject matter, with the objective of reducing or preferably eliminating ambiguity and ensure that all propositions are traceable back to these foundational axioms. This process must be performed by talented, skilled, experienced subject matter experts.