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 contains three basic activities – it identifies, records, and communicates the cost-effective events of a business to interested users. Let’s take a closer look at these three activities.

Identifying Economic Events: Many events are happening daily in business. A lot of them are affecting budget with the business whereas, some don’t. Events affecting financial position of an business i.e. Assets=Liability+ Owner’s Equity, are called Economic events and meant to be recorded in accounting system. To recognize economic events; a company selects the economic 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. Types of non-economic events of the identical companies might be appointing a fresh manager by PepsiCo and departure of a trusted employee from AT & T.

Recording Economic Events: Each company like PepsiCo identifies economic events, it records those events as a way to provide a reputation its financial activities. Recording contains keeping a systematic, chronological diary of events, measured in money. Recording comes through a process called double entry accounting system. It includes 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 most frequent of such reports are known as Financial Statements. 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. For instance, PepsiCo accumulates all sales transactions over a certain time frame and reports the information jointly amount within the company’s financial statements such data are said being reported in the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies a multitude of transactions and constitutes a group of activities understandable and meaningful.

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