Accounting - The Language of Business

Accounting is the language of business. No matter the size of your business, if you don’t speak the language, you’re running blind.

At its simplest, accounting is keeping track of money. But its real value lies in the relationships between the profit and loss statement, balance sheet and cash flow. Understanding how these reports work together gives business owners clarity, control and confidence.

The Power of Double Entry Bookkeeping

Accounting is built on a principle known as double entry bookkeeping. For every entry, there’s an opposite and equal entry. For example:

• Increase in sales → Increase in debtors

• Debtor pays invoice → Increase in cash and reduction in debtors

This double entry principle is what makes forensic accounting possible. It creates a paper trail: if an asset is bought, we can trace how it was paid for and where the money came from, whether it was cash or a journal entry. That trail doesn’t lie.

Why Business Owners Need to Understand Accounting

You might say, “That’s great for a forensic accountant, but why should I care?”

Simple. Accounting helps you measure, understand, and improve your business’s performance. If you don’t know where your money is going, you can’t make good decisions, and worse, you might not even know when something is going wrong.

Real Case: The Architect Who Was “Profitable” but Broke

We were brought in to investigate the accounts of a successful architect. His business was profitable on paper, but he was constantly struggling with cash flow. He also had a nagging concern about his bookkeeper.

What we found shocked him.

Over several years, his bookkeeper had stolen $700,000. She covered her tracks in the simplest way: by allocating the stolen money to the architect’s loan account. The account balance kept increasing, and the architect, who didn’t understand accounting, thought this was a good thing.

It wasn’t. It was growing the wrong way.

Had he understood even the basics of accounting, he would have asked the right question:

“If I’m making this much profit, where is the cash?”

That one question could have stopped the fraud years earlier.

Could the Accountant Have Found the Fraud?

Not likely. The architect only saw his accountant once a year, for his annual tax return. That’s not enough contact to really understand a client’s business.

At Dolman Bateman, our Business Wisdom Workshops are built differently. We meet with our clients twice a month. We know how their business works. We help them understand their numbers, and how to use those numbers to grow profit, improve cash flow, and protect against fraud.

What’s Next?

In future posts, we’ll break down the language of business: what business owners need to know about accounting, reports, and how to use them to make better decisions.

Stay tuned, and if you're ready to understand your numbers and take back control of your business, get in touch with us.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.