The Notion of Accounting

Accounting is definitely an information system which identifies, records, analyzes interprets and communicates auto data of an financial entity. Accounting includes three basic activities – it identifies, records, and communicates auto era of a corporation to interested users. Let us take a closer look at these three activities.

Identifying Economic Events: Many events are happening every day in a business. Many of them are affecting financial position from the business whereas, some don’t. Events affecting position of an business i.e. Assets=Liability+ Owner’s Equity, are classified as Economic events and allowed to be recorded in accounting system. To recognize economic events; a business selects the economic 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. Examples of non-economic era of the identical companies could possibly be appointing a new manager by PepsiCo and departure of a trusted employee from AT & T.

Recording Economic Events: Once a company like PepsiCo identifies economic events, it records those events as a way to provide a history of its financial activities. Recording consists of keeping a deliberate, chronological diary of events, measured in dollars and cents. Recording comes through a process called double entry accounting system. The machine consists of recording, summarizing, checking mathematical accuracy and preparing statement of monetary position.

Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users by means of accounting reports. The most common of such reports are known as Financial Statements. Parties interested into business’s financial information may be classified into three main categories. The your customers are Internal, External and Government. To really make the reported financial information meaningful, PepsiCo reports the recorded data in the standardized way. It accumulates information due to similar transactions. For example, PepsiCo accumulates all sales transactions more than a certain period of time and reports the information together amount inside the company’s financial statements such data are said to become reported inside the aggregate. By presenting the recorded data from the aggregate, the accounting process simplifies many transactions and constitutes a compilation of activities understandable and meaningful.

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