Accounting is definitely an information system which identifies, records, analyzes interprets and communicates the cost-effective data of your financial entity. Accounting consists of three basic activities – it identifies, records, and communicates auto era of a business to interested users. Let us take a close look at these 3 activities.
Identifying Economic Events: Many events are happening daily in a business. A number of them are affecting financial position in the business whereas, some don’t. Events affecting budget of your business i.e. Assets=Liability+ Owner’s Equity, are known as Economic events and allowed to be recorded in accounting system. To spot economic events; an organization selects the economic events strongly related its business. Types 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. Samples of non-economic events of the identical companies could possibly be appointing a fresh 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 as a way to provide a good its financial activities. Recording contains keeping a deliberate, chronological diary of events, measured in money. Recording comes by way of a process called double entry accounting system. It contains 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 are classified as Fiscal reports. Parties interested into business’s financial information might be classified into three main categories. The your customers are Internal, External and Government. To really make the reported financial information meaningful, PepsiCo reports the recorded data inside a standardized way. It accumulates information caused by similar transactions. By way of example, PepsiCo accumulates all sales transactions more than a certain stretch of time and reports your data as one amount within the company’s financial statements such data have been demonstrated to become reported in the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies many transactions and is really a number of activities understandable and meaningful.
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