Accounting is definitely an information system which identifies, records, analyzes interprets and communicates auto data of the financial entity. Accounting includes three basic activities – it identifies, records, and communicates the economical era of a company to interested users. Consider a close look at these 3 activities.
Identifying Economic Events: Many events are happening each day in a business. A number of them are affecting financial position from the business whereas, some don’t. Events affecting position of the business i.e. Assets=Liability+ Owner’s Equity, these are known as Economic events and said to be recorded in accounting system. To distinguish economic events; a business selects the economical events relevant to its business. Examples 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. Samples of non-economic era of the same companies could be appointing a whole new manager by PepsiCo and departure of an trusted employee from AT & T.
Recording Economic Events: After a company like PepsiCo identifies economic events, it records those events to be able to provide a good reputation for its financial activities. Recording contains keeping a planned out, chronological diary of events, measured in money. Recording comes by having a process called double entry accounting system. The device is made up 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 using accounting reports. The most common of these reports are called Fiscal reports. Parties interested into business’s financial information can be classified into three main categories. The interested parties are Internal, External and Government. To help make the reported financial information meaningful, PepsiCo reports the recorded data in the standardized way. It accumulates information as a result of similar transactions. For example, PepsiCo accumulates all sales transactions over the certain period of time and reports the data as one amount inside the company’s financial statements such data have been demonstrated to become reported inside the aggregate. By presenting the recorded data in the aggregate, the accounting process simplifies a multitude of transactions and produces a compilation of activities understandable and meaningful.
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