Accounting is surely an information system which identifies, records, analyzes interprets and communicates the economic data of your financial entity. Accounting includes three basic activities - it identifies, records, and communicates the economic era of a corporation to interested users. Let's take a closer inspection at these 3 activities.
Identifying Economic Events: Many events are happening each day in a business. Many of them are affecting budget of 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 supposed to be recorded in accounting system. To distinguish economic events; an organization selects the economic events tightly related 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. Examples of non-economic events of exactly the same companies may be appointing a brand new manager by PepsiCo and departure of your 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 a history of its financial activities. Recording consists of keeping an organized, chronological diary of events, measured in money. Recording comes via a process called double entry accounting system. The machine contains 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 typical of such reports are classified as Fiscal reports. Parties interested into business's financial information can be classified into three main categories. The your list 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 due to similar transactions. As an example, PepsiCo accumulates all sales transactions over the certain time period and reports your data as you amount in the company's fiscal reports such data are said to become reported in the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies numerous transactions and is really a group of activities understandable and meaningful.
A significant element in communicating economic events could be the accountant's capacity to analyze and interpret the reported information. Analyses involve use of ratios, percentages, graphs, and charts to highlight, significant financial trends and relationships. Interpretation involves explaining the uses, meaning and limitations of reported data.
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