Accounting is definitely an information system which identifies, records, analyzes interprets and communicates the cost-effective data of your financial entity. Accounting includes three basic activities – it identifies, records, and communicates auto era of a company to interested users. Let us take a closer inspection at these 3 activities.
Identifying Economic Events: Many events are happening each day in a business. A number of them are affecting budget in the business whereas, some don’t. Events affecting position of an business i.e. Assets=Liability+ Owner’s Equity, are called Economic events and allowed to be recorded in accounting system. To distinguish economic events; a firm selects the economical events relevant to its business. Examples of economic events will be 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 era of the same companies may be appointing a brand new manager by PepsiCo and departure of an trusted employee from AT & T.
Recording Economic Events: When a company like PepsiCo identifies economic events, it records those events in order to provide a good 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. It 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 means of accounting reports. The commonest of the reports are called Financial Statements. Parties interested into business’s financial information could be classified into three main categories. The interested parties are Internal, External and Government. To make the reported financial information meaningful, PepsiCo reports the recorded data in a standardized way. It accumulates information as a result of similar transactions. For example, PepsiCo accumulates all sales transactions more than a certain time period and reports your data as you amount within the company’s fiscal reports such data have been demonstrated to be reported within the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies a variety of transactions and is really a number of activities understandable and meaningful.
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