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The Concept of Accounting

  • Accounting is definitely an information system which identifies, records, analyzes interprets and communicates the economic data of the financial entity. Accounting consists 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 each day in a business. A number of them are affecting position of the business whereas, some don't. Events affecting budget of the business i.e. Assets=Liability+ Owner's Equity, are called Economic events and supposed to be recorded in accounting system. To distinguish economic events; a firm selects auto events strongly related its business. Instances 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 era of exactly the same companies may be appointing a new manager by PepsiCo and departure of your trusted employee from AT & T.

    Recording Economic Events: After a company like PepsiCo identifies economic events, it records those events to be able to supply a good its financial activities. Recording contains keeping a deliberate, chronological diary of events, measured in dollars and cents. Recording comes via a process called double entry accounting system. The system includes 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 these reports are known as Fiscal reports. Parties interested into business's financial information can be classified into three main categories. The your list are Internal, External and Government. To help make the reported financial information meaningful, PepsiCo reports the recorded data inside a standardized way. It accumulates information as a result of similar transactions. As an example, PepsiCo accumulates all sales transactions over a certain time period and reports your data together amount within the company's financial statements such data have been demonstrated to be reported in the aggregate. By presenting the recorded data in the aggregate, the accounting process simplifies many transactions and is really a series of activities understandable and meaningful.

    An important consider communicating economic events is the accountant's ability to analyze and interpret the reported information. Analyses involve use 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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