Accounting as a Language for Business and for Investing

Penman & Pope

Accounting is the language of business, the language with which we communicate about business activities, the language by which we understand what’s going on in a business. Chapter 1 takes it a little further: It is in that language that we track value in a business. We do it formally, keeping an accounting book on value that applies a disciplined syntax in order to communicate.

That book records business activities with double entry: There are two pieces of language given to each business transaction; a sale of a product is recorded as revenue and as an accounts receivable. Speaking out of both sides of the mouth? Double entry gives the accounting book properties which enhance the ability to draw value implications from business activities. You’ll see these coming strikingly to bear as the accounting book is developed as you proceed through chapters.

The importance of double-entry accounting has long been recognized. The quote from Goethe is pertinent:

“What advantages does he derive from the system of book-keeping by double entry? It is among the finest inventions of the human mind.”

… Goethe, Wilhelm Meister’s Apprentice, Book One (1795)

To that, add the following accolades to the double-entry system:

Adam Smith a joint in the invisible hand

Max Weber precursor to and the consequence of modern capitalism.

Sombart promoting capitalism

Schumpeter a towering moment

Carlyle a vein of water flowing hidden underground

Cayley one of the two perfect sciences

For a short tutorial on double entry accounting on YouTube, go to