Accounting is an information system which identifies, records, analyzes interprets and communicates the cost-effective data of a financial entity. Accounting includes three basic activities – it identifies, records, and communicates the economic era of a business to interested users. Let’s take a closer look at these three activities.
Identifying Economic Events: Many events are happening daily in business. Many of them are affecting budget from the business whereas, some don’t. Events affecting financial position of your business i.e. Assets=Liability+ Owner’s Equity, are classified as Economic events and said to be recorded in accounting system. To distinguish economic events; a company selects the economical events tightly related to its business. Instances 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. Samples of non-economic era of the same companies might be appointing a whole new manager by PepsiCo and departure of an trusted employee from AT & T.
Recording Economic Events: Once a company like PepsiCo identifies economic events, it records those events in order to provide a reputation its financial activities. Recording includes keeping a systematic, chronological diary of events, measured in money. Recording comes via a process called double entry accounting system. The device consists 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 through accounting reports. The most common of the reports these are known as Financial Statements. Parties interested into business’s financial information may be classified into three main categories. The your customers are Internal, External and Government. To make the reported financial information meaningful, PepsiCo reports the recorded data in a standardized way. It accumulates information resulting from similar transactions. As an example, PepsiCo accumulates all sales transactions over a certain stretch of time and reports the data together amount from the company’s financial statements such data have been demonstrated to get reported inside the aggregate. By presenting the recorded data from the aggregate, the accounting process simplifies a multitude of transactions and makes a number of activities understandable and meaningful.
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