Accounting is definitely an information system which identifies, records, analyzes interprets and communicates auto data of the financial entity. Accounting includes three basic activities – it identifies, records, and communicates the economic events of an organization to interested users. Consider a closer look at these three activities.
Identifying Economic Events: Many events are happening daily in a business. A number of them are affecting position in the business whereas, some don’t. Events affecting budget of an business i.e. Assets=Liability+ Owner’s Equity, are classified as Economic events and meant to be recorded in accounting system. To recognize economic events; an organization selects the economic events highly relevant to its business. Examples of economic events include the sale of snack chips PepsiCo, Providing of telephone services by AT & T, and payment of wages by Ford Motors Company. Samples of non-economic era of exactly the same companies may be appointing a brand new manager by PepsiCo and departure of your trusted employee from AT & T.
Recording Economic Events: Once a company like PepsiCo identifies economic events, it records those events in order to give you a good reputation for its financial activities. Recording is made up of keeping an organized, chronological diary of events, measured in dollars and cents. Recording comes via a process called double entry accounting system. The device includes recording, summarizing, checking mathematical accuracy and preparing statement of monetary position.
Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users by using accounting reports. The most common of these reports these are known as Financial Statements. Parties interested into business’s financial information might be classified into three main categories. The your list are Internal, External and Government. To really make the reported financial information meaningful, PepsiCo reports the recorded data within a standardized way. It accumulates information as a result of similar transactions. By way of example, PepsiCo accumulates all sales transactions over the certain period of time and reports your data together amount in the company’s financial statements such data have been proved to become reported in the aggregate. By presenting the recorded data inside the aggregate, the accounting process simplifies a multitude of transactions and constitutes a compilation of activities understandable and meaningful.
A significant consider communicating economic events is the accountant’s capability to analyze and interpret the reported information. Analyses involve use of ratios, percentages, graphs, and charts to spotlight, significant financial trends and relationships. Interpretation involves explaining the uses, meaning and limitations of reported data.
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