Capitalism is an economic system whereby most businesses, industries, startups, organizations, and their resources are owned by private individuals or companies, and not by government. In other words, a capitalist owns, controls and manages businesses and their properties in accord with his/her interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society.
Accounting, on the other hands, is the process of identifying, classifying, analyzing, summarizing and recording of financial information or economic information to permit informed decision by the use of the information.
The concept of capitalism is that individuals are free to start businesses of their choice, compete with others, and make profits. Capitalism idea is that competition often leads to better products and services because everyone is try to attract customers and more sales.
And to get more customers that leads to more sale at your side, a better products and services will be produced to outperform your competitors’ products and services.
People work for wages, and they use their money to buy goods and services they need. Prices are generally determined by supply and demand—what people are willing to pay for something and how much of it is available. The main goal in capitalism is profit-making, which can drive innovation and economic growth.
So, what or how does Capitalism works in Accounting?
Every business men and business women starts a business to make profit. No man started a business to lose. So, capitalism in accounting often refers to the economic system in which businesses operate with the primary goal of making profit.
In a market-driven economy, accounting plays an essential role in capitalism by providing accurate financial information or economic information that permit informed decisions for businesses about resource allocation, investment, and growth.
Under capitalism, accounting measures profitability, tracks assets and liabilities, and makes sure there is transparency for stakeholders such as investors, creditors, and regulators. By doing so, accounting helps to boost the efficient functioning of capitalist markets which allows businesses to maintain financial stability, attract capital, and operate within the competitive landscape.
In essence, accounting serves as the language and model through which the financial health and performance of businesses are identified, classified, summarized, recorded and communicated within a capitalist framework. In another comprehensive article, you can learn more about accounting concepts and how it works generally.
