Accounting as a Language

Accounting as a language

Accounting is dubbed “language” of business activities conducted by firms as it is used to communicate business transactions per se to all stakeholders. To evaluate this statement, we should first consider the following issues:

What is a firm?

According to La Passerelle (1997), a firm is formed by people who turn raw materials into final goods and services to generate income. There are mainly three kinds of firm; they are industrial firms such as Microsoft, commercial firms such as Apple, and financial firms such as HSBC.

There are three kinds of ownership: sole-proprietorship, partnership and corporation. One of the reasons why accounting exist is that all kinds of firm require same accounting technique, that is to identify, record, and communicate the economic activities of a firm to users. As accounting communicates the economic activities of a firm to users, it acts as a dubbed “language” of business activities to communicate business transactions per se to all stakeholders conducted by firms.

Objectives of firms

There are different kinds of objectives for a firm to achieve, namely profit maximization, profit satisfaction, sales maximization, growth maximization, environmental concerns and cooperative.

Despite the fact that there are various kinds of objectives for a firm to achieve, most firms aim at profit maximization. Pettinger (2013) suggests that profit maximization means to earn higher dividends for shareholders, earn extra profit to launch different research programmes, to strengthen the firm and enables higher salaries for their employees.

While different firms aim at different objectives, accounting generates reports showing their objectives. That’s how accounting acts as a language of business activities.

Why do firms exist?

According to Coase (1937), firm exists because of the existence of transaction costs of using the market, firms replaces the market mechanism in order to save the cost of discovering...