Accounting can be an information system which identifies, records, analyzes interprets and communicates the economical data of an financial entity. Accounting consists of three basic activities – it identifies, records, and communicates the economic events of a company to interested users. Consider a good look at these three activities.
Identifying Economic Events: Many events are happening daily in business. A number of them are affecting financial position from 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; an organization selects auto events highly relevant to its business. Examples of economic events would be the sale of snack chips PepsiCo, Providing of telephone services by AT & T, and payment of wages by Ford Motors Company. Examples of non-economic events of the same companies may be appointing a whole 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 provide a reputation its financial activities. Recording includes 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 machine is made up of 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 most common of such reports these are known as Financial Statements. Parties interested into business’s financial information could 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 inside a standardized way. It accumulates information due to similar transactions. For example, PepsiCo accumulates all sales transactions over a certain period of time and reports the information together amount in the company’s fiscal reports such data have been proved to get reported from the aggregate. By presenting the recorded data in the aggregate, the accounting process simplifies a multitude of transactions and makes a group of activities understandable and meaningful.
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