Accounting - A Foreign Language

in Accounting

Accounting is the language of money.

It really is a language. And, like other languages, you can become fluent in it. Becoming fluent in accounting will take about as long as becoming fluent in any other language. Instead of using letters or characters, accounting uses numbers. The confusion starts here - most of us have had exposure to mathematics, so most of us understand the concept of numbers. While this may be true, most of us are not able to understand accounting as a language.

When a young boy first learns his ABC's, he will be able to pick up a book, flip to any page, and tell you what every letter on that page is. He knows those letters. He knows them well. He understands what they mean. But, does that mean he understands the book? Of course not! He can't read!

So it goes with accounting. Most of us can pick up a financial statement, and we can point out all the numbers. A woman point to profit and say "See? This is positive one-million. This company has made a million dollars." But, those trained in accounting knows that this company may not necessarily have made a million dollars. Just because she recognized the numbers does not mean you have any idea what is going on in the statements. Just as the young boy had no idea the story of the book, the woman had no idea the story of the statements.

Most people have no idea that accounting is a language as such. It's not their fault - nobody told them so. But, it is. It enables you to do many things. A doctor does not see a body and see just a body - he or she sees a number of systems all working with each other. The doctor can see one part of a system and see how it effects the other systems connected to it. When a system is not functioning properly, the body becomes ill. Just the same, an accountant does not see a piece of stock or a business as just a business. He or she sees it as a collection of systems, too. It is like X-Ray vision into a business. One can tell what parts are working, where the strengths and weaknesses are, and the history of the company. One can really read the story behind the financial statements. A good investor will see which "stories" are good, and he or she will invest his money in those companies.

Here's a question for you - does it make sense to invest in a company if you cannot read its story?

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Cody Scholberg has 1 articles online

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Accounting - A Foreign Language

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This article was published on 2010/04/01