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The Idea of Accounting





Accounting is an information system which identifies, records, analyzes interprets and communicates the cost-effective data of an financial entity. Accounting includes three basic activities - it identifies, records, and communicates the economical era of a corporation to interested users. Consider a close look at these three activities.

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Identifying Economic Events: Many events are happening every day in a business. Many of them are affecting financial position in the business whereas, some don't. Events affecting position of a business i.e. Assets=Liability+ Owner's Equity, are called Economic events and said to be recorded in accounting system. To distinguish economic events; a firm selects auto events strongly related its business. Samples of economic events will be 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 events of the identical companies could be appointing a new manager by PepsiCo and departure of an trusted employee from AT & T.

Recording Economic Events: When a company like PepsiCo identifies economic events, it records those events in order to give you a reputation its financial activities. Recording includes keeping an organized, chronological diary of events, measured in money. Recording comes via a process called double entry accounting system. The device contains recording, summarizing, checking mathematical accuracy and preparing statement of economic position.

Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users by using accounting reports. The most frequent of such reports these are known as Fiscal reports. Parties interested into business's financial information could 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 in the standardized way. It accumulates information resulting from similar transactions. As an example, PepsiCo accumulates all sales transactions on the certain period of time and reports your data as you amount from the company's financial statements such data have been demonstrated to get reported within the aggregate. By presenting the recorded data in the aggregate, the accounting process simplifies numerous transactions and produces a number of activities understandable and meaningful.

A significant take into account communicating economic events may be the accountant's ability 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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