Accounting is surely an information system which identifies, records, analyzes interprets and communicates the economic data of a financial entity. Accounting consists of three basic activities – it identifies, records, and communicates the economic events of an organization to interested users. Consider a closer inspection at these 3 activities.
Identifying Economic Events: Many events are happening each day in a business. Many of them are affecting financial position of the business whereas, some don’t. Events affecting budget of the business i.e. Assets=Liability+ Owner’s Equity, are known as Economic events and meant to be recorded in accounting system. To recognize economic events; a company 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. Instances of non-economic events of exactly the same companies may be appointing a fresh manager by PepsiCo and departure of a trusted employee from AT & T.
Recording Economic Events: After a company like PepsiCo identifies economic events, it records those events to be able to give you a good its financial activities. Recording is made up of keeping a deliberate, chronological diary of events, measured in money. Recording comes through a process called double entry accounting system. The machine is made up of recording, summarizing, checking mathematical accuracy and preparing statement of financial position.
Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users by way of accounting reports. The commonest of those reports these are known as Fiscal reports. Parties interested into business’s financial information may 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 caused by similar transactions. As an example, PepsiCo accumulates all sales transactions more than a certain stretch of time and reports the information jointly amount in the company’s fiscal reports such data are said being reported in the aggregate. By presenting the recorded data from the aggregate, the accounting process simplifies a multitude of transactions and makes a compilation of activities understandable and meaningful.
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