Grossman Melchiorsen posted an update 2 years ago
Accounting can be an information system which identifies, records, analyzes interprets and communicates the cost-effective data of your financial entity. Accounting is made up of three basic activities – it identifies, records, and communicates auto events of a business to interested users. Let us take a good look at these three activities.
Identifying Economic Events: Many events are happening every day in business. Some of them are affecting financial position in the business whereas, some don’t. Events affecting financial position of your business i.e. Assets=Liability+ Owner’s Equity, are called Economic events and said to be recorded in accounting system. To spot economic events; a company selects auto events tightly related to its business. Samples 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 might be appointing a 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 so that you can give you a history of its financial activities. Recording includes keeping a systematic, chronological diary of events, measured in dollars and cents. Recording comes by having a process called double entry accounting system. It 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 by way of accounting reports. The commonest of such reports are classified as Fiscal reports. Parties interested into business’s financial information might be classified into three main categories. The your clients are Internal, External and Government. To make the reported financial information meaningful, PepsiCo reports the recorded data in the standardized way. It accumulates information caused by similar transactions. By way of example, PepsiCo accumulates all sales transactions more than a certain time period and reports the data together amount within the company’s financial statements such data are said to get reported within the aggregate. By presenting the recorded data from the aggregate, the accounting process simplifies a multitude of transactions and is really a number of activities understandable and meaningful.
An essential element in communicating economic events is the accountant’s capability to analyze and interpret the reported information. Analyses involve using 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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