The Concept of Accounting

Accounting can be an information system which identifies, records, analyzes interprets and communicates the economical data of an financial entity. Accounting consists of three basic activities – it identifies, records, and communicates the cost-effective events of a business to interested users. Consider a close look at these 3 activities.

Identifying Economic Events: Many events are happening each day in business. A number of them are affecting financial position of 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 supposed to be recorded in accounting system. To distinguish economic events; a firm selects the economic events relevant to its business. Types of economic events include 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 era of exactly the same companies could be appointing a new manager by PepsiCo and departure of your trusted employee from AT & T.

Recording Economic Events: Each company like PepsiCo identifies economic events, it records those events as a way to give you a good reputation for its financial activities. Recording consists of keeping a systematic, chronological diary of events, measured in dollars and cents. Recording comes by having a process called double entry accounting system. It is made up of recording, summarizing, checking mathematical accuracy and preparing statement of economic position.

Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users through accounting reports. The commonest of those reports are classified as Fiscal reports. Parties interested into business’s financial information might be classified into three main categories. The your list 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. For example, PepsiCo accumulates all sales transactions over a certain time period and reports the info as you amount from the company’s financial statements such data have been proved to become reported inside the aggregate. By presenting the recorded data inside the aggregate, the accounting process simplifies a multitude of transactions and constitutes a number of activities understandable and meaningful.

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