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Accounting can be an information system which identifies, records, analyzes interprets and communicates the economic data of the financial entity. Accounting is made up of three basic activities – it identifies, records, and communicates the cost-effective era of a company to interested users. Let us take a good look at these 3 activities.
Identifying Economic Events: Many events are happening on a daily basis in business. A lot of them are affecting position of the business whereas, some don’t. Events affecting position of an 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 economic events highly 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 identical companies might be appointing a new manager by PepsiCo and departure of an trusted employee from AT & T.
Recording Economic Events: After a company like PepsiCo identifies economic events, it records those events to be able to supply a reputation its financial activities. Recording contains keeping a systematic, chronological diary of events, measured in dollars and cents. Recording comes by way of a process called double entry accounting system. The system 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 through accounting reports. The commonest of these reports are known as Financial Statements. Parties interested into business’s financial information can be classified into three main categories. The your clients are Internal, External and Government. To help make the reported financial information meaningful, PepsiCo reports the recorded data within a standardized way. It accumulates information resulting from similar transactions. For instance, PepsiCo accumulates all sales transactions more than a certain time period and reports the data as one amount inside the company’s fiscal reports such data have been demonstrated to become reported from the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies numerous transactions and makes a compilation of activities understandable and meaningful.
A vital aspect in communicating economic events is the accountant’s ability to analyze and interpret the reported information. Analyses involve utilization 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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Accounting is definitely an information system which identifies, records, analyzes interprets and communicates the economic data of a financial entity. Accounting contains three basic activities – it identifies, records, and communicates the economic era of a corporation to interested users. Let us take a closer inspection at these […] View