Accounting is an info system which identifies, records, analyzes interprets and communicates the financial data of a financial entity. Accounting consists of three primary activities – it identifies, records, and communicates the economic occasions of an organization to interested users. Let’s take a closer look at these three activities.
Figuring out Economic Events:
Many occasions are happening every day in a business. A few of them are affecting monetary position of the business whereas, some don’t. Events affecting financial position of a business i.e. Assets=Liability+ Owner’s Equity, are called Financial events and presupposed to be recorded in accounting system. To establish economic occasions; an organization selects the financial occasions relevant to its business. Examples of economic occasions are the sale of snack chips PepsiCo, Providing of telephone companies by AT & T, and payment of wages by Ford Motors Company. Examples of non-economic occasions of the identical firms is perhaps appointing a new manager by PepsiCo and departure of a trusted worker from AT & T.
Recording Economic Occasions:
As soon as an organization like PepsiCo identifies financial events, it records those occasions in an effort to provide a history of its monetary activities. Recording consists of keeping a systematic, chronological diary of occasions, measured in dollars and cents. Recording comes via a process called double entry accounting system. The system consists of recording, summarizing, checking mathematical accuracy and preparing assertion of economic position.
Speaking Consolidate Financial Data:
Finally, PepsiCo communicates the collected info to interested users by the use of accounting reports. The most common of those reports are called Financial Statements. Parties interested into business’s financial info will be categorized into three essential categories. The interested parties are Internal, Exterior and Government. To make the reported financial information meaningful, PepsiCo reports the recorded data in a standardized way. It accumulates info resulting from related transactions. For example, PepsiCo accumulates all sales transactions over a sure period of time and reports the data as one quantity in the company’s monetary statements such data are said to be reported in the aggregate. By presenting the recorded data in the combination, the accounting process simplifies a multitude of transactions and makes a series of activities understandable and meaningful.
A vital element in communicating economic occasions is the accountant’s ability to investigate and interpret the reported information. Analyses involve use of ratios, percentages, graphs, and charts to highlight, significant financial tendencies and relationships. Interpretation entails explaining the uses, meaning and limitations of reported data.
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