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Accounting can be an information system which identifies, records, analyzes interprets and communicates the economical data of a financial entity. Accounting is made up of three basic activities – it identifies, records, and communicates the economical events of a company to interested users. Consider a closer inspection at these 3 activities.
Identifying Economic Events: Many events are happening daily in business. Many of them are affecting financial position of the business whereas, some don’t. Events affecting budget 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 spot economic events; a firm selects the cost-effective events relevant to its business. Samples 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 could possibly be appointing a fresh manager by PepsiCo and departure of a trusted employee from AT & T.
Recording Economic Events: Each company like PepsiCo identifies economic events, it records those events in order to provide a reputation its financial activities. Recording contains keeping a planned out, chronological diary of events, measured in dollars and cents. Recording comes via a process called double entry accounting system. The device 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 by way of accounting reports. The most typical of these reports these are known as Fiscal reports. Parties interested into business’s financial information may be classified into three main categories. The your list are Internal, External and Government. To make the reported financial information meaningful, PepsiCo reports the recorded data inside a standardized way. It accumulates information resulting from similar transactions. For instance, PepsiCo accumulates all sales transactions on the certain period of time and reports the information as one amount within 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 a variety of transactions and is really a compilation of activities understandable and meaningful.
An important aspect in communicating economic events will be the accountant’s capacity to analyze and interpret the reported information. Analyses involve utilization of ratios, percentages, graphs, and charts to focus on, significant financial trends and relationships. Interpretation involves explaining the uses, meaning and limitations of reported data.
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