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Is Accounting all about Maths?

8 July 2019 | Published by Mark Samowitz

When I mention the word “ACCOUNTING” to non-accountants, they often respond with: “Accounting? Not for me! I was never good at Maths!”

Most people associate accounting with Maths and numbers. But.. I disagree! Accounting is a language! The numbers simply help to quantify certain concepts. I’ll illustrate what I mean: If someone asks me for directions and I say turn left at the light and travel for 1.5kms. The number – 1.5kms – simply quantifies for how long the person should stay left for. The key word here is: LEFT.
If you don’t understand what LEFT means, you’re walking in the wrong direction at the light – that could be catastrophic!

When it comes to accounting it’s all about the language: The net asset value of the company is R42 350 435, the gross profit margin for the period is 63%, the current ratio has reduced and is now 3:1, our prepaid expenses have increased to R320 000, non-current liabilities are now sitting at R780 000.

The number simply represents the quantity. The number is normally arrived at by performing a simple arithmetic sum – This year MINUS last year OR by ADDING a number of different items together OR this year DIVIDED by last year OR TIMES by 100 to get a percentage. The maths is simple – it’s the language that is more complex.

Understand the language: net asset value, gross profit margin, current ratio, prepaid expenses, non-current liabilities. Each of these words has a very definitive meaning.
If you’re vague about the word you’re quantifying – the result can be catastrophic. You may land up turning right when you needed to make a left turn!!

Becoming accounting literate involves mastering the accounting language. The numbers simply quantify!