Accounting is an information system which identifies, records, analyzes interprets and communicates auto data of the financial entity. Accounting is made up of three basic activities – it identifies, records, and communicates auto events of a business to interested users. Let us take a closer inspection at these 3 activities.
Identifying Economic Events: Many events are happening each day in business. Many of them are affecting financial position from the business whereas, some don’t. Events affecting budget of the business i.e. Assets=Liability+ Owner’s Equity, these are known as Economic events and supposed to be recorded in accounting system. To recognize economic events; a company selects the cost-effective events highly relevant to its business. Examples of economic events are 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 exactly the same companies could possibly be appointing a brand new manager by PepsiCo and departure of the 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 a history of its financial activities. Recording includes keeping a deliberate, chronological diary of events, measured in money. Recording comes by having a process called double entry accounting system. The device contains recording, summarizing, checking mathematical accuracy and preparing statement of economic position.
Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users by means of accounting reports. The commonest of those reports these are known as Fiscal reports. Parties interested into business’s financial information might be classified into three main categories. The your clients are Internal, External and Government. To really make the reported financial information meaningful, PepsiCo reports the recorded data in the standardized way. It accumulates information due to similar transactions. For example, PepsiCo accumulates all sales transactions more than a certain stretch of time and reports the information as one amount in the company’s financial statements such data have been proved to get reported inside the aggregate. By presenting the recorded data in the aggregate, the accounting process simplifies many transactions and constitutes a series of activities understandable and meaningful.
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