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Accounting can be an information system which identifies, records, analyzes interprets and communicates the cost-effective data of the financial entity. Accounting consists of three basic activities – it identifies, records, and communicates the economical era of a corporation to interested users. Let us take a closer inspection at these three activities.
Identifying Economic Events: Many events are happening each day in business. Some of them are affecting position in the business whereas, some don’t. Events affecting budget of your business i.e. Assets=Liability+ Owner’s Equity, are known as Economic events and meant to be recorded in accounting system. To spot economic events; a firm selects auto events relevant to its business. Instances of economic events are 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 exactly the same companies could be appointing a whole new manager by PepsiCo and departure of the trusted employee from AT & T.
Recording Economic Events: When a company like PepsiCo identifies economic events, it records those events to be able to give you 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 financial position.
Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users by using accounting reports. The most frequent of those reports these are known as Financial Statements. Parties interested into business’s financial information can be classified into three main categories. The your customers are Internal, External and Government. To help make the reported financial information meaningful, PepsiCo reports the recorded data in a standardized way. It accumulates information caused by similar transactions. As an example, PepsiCo accumulates all sales transactions more than a certain stretch of time and reports the information as you amount inside the company’s fiscal reports such data are said to get reported inside the aggregate. By presenting the recorded data from the aggregate, the accounting process simplifies numerous transactions and constitutes a series of activities understandable and meaningful.
A vital aspect in communicating economic events is the accountant’s capacity to analyze and interpret the reported information. Analyses involve using ratios, percentages, graphs, and charts to spotlight, significant financial trends and relationships. Interpretation involves explaining the uses, meaning and limitations of reported data.
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