The Concept of Accounting

Accounting is surely an information system which identifies, records, analyzes interprets and communicates the cost-effective data of your financial entity. Accounting includes three basic activities – it identifies, records, and communicates the cost-effective events of a corporation to interested users. Let us take a good look at these three activities.

Identifying Economic Events: Many events are happening every day in a business. A lot of them are affecting budget with the business whereas, some don’t. Events affecting position of a business i.e. Assets=Liability+ Owner’s Equity, are known as Economic events and said to be recorded in accounting system. To recognize economic events; a firm selects the cost-effective events relevant to 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. Instances of non-economic events of the identical companies might be appointing a brand 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 provide a good reputation for its financial activities. Recording is made up of keeping a deliberate, chronological diary of events, measured in dollars and cents. Recording comes by way of a process called double entry accounting system. The machine 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 by using accounting reports. The most common of these reports are known 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 within a standardized way. It accumulates information resulting from similar transactions. By way of example, PepsiCo accumulates all sales transactions on the certain time frame and reports the data as one amount in the company’s fiscal reports such data have been demonstrated being reported from the aggregate. By presenting the recorded data in the aggregate, the accounting process simplifies a variety of transactions and is really a number of activities understandable and meaningful.

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