Accounting is surely an information system which identifies, records, analyzes interprets and communicates the economical data of an financial entity. Accounting is made up of three basic activities – it identifies, records, and communicates the cost-effective era of an organization to interested users. Let us take a close look at these three activities.
Identifying Economic Events: Many events are happening each day in business. A number of them are affecting financial position with the business whereas, some don’t. Events affecting budget of your business i.e. Assets=Liability+ Owner’s Equity, these are known as Economic events and supposed to be recorded in accounting system. To distinguish economic events; a business selects the cost-effective events strongly related its business. Types 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. Types of non-economic events of exactly the same companies might 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 so that you can give you a good its financial activities. Recording consists of keeping a deliberate, chronological diary of events, measured in dollars and cents. Recording comes by way of 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 commonest of such reports are classified as Fiscal reports. 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 inside a standardized way. It accumulates information due to similar transactions. For example, PepsiCo accumulates all sales transactions on the certain stretch of time and reports your data as one amount in the company’s financial statements such data have been demonstrated to be reported within the aggregate. By presenting the recorded data from the aggregate, the accounting process simplifies a variety of transactions and is really a compilation of activities understandable and meaningful.
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