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The Concept of Accounting

Nick Epp (2018-07-13)


Accounting is an information system which identifies, records, analyzes interprets and communicates the economic information of a monetary entity. Accounting consists of three fundamental activities - it identifies, records, and communicates the financial events of an organization to interested users. Let's take a more in-depth take a look at these three activities.

Identifying Economic Occasions:
Many occasions are occurring each day in a business. Some of them are affecting monetary place of the business whereas, some don't. Events affecting monetary position of a business i.e. Belongings=Liability+ Owner's Equity, are called Economic occasions and imagined to be recorded in accounting system. To determine economic events; a company selects the economic events relevant to its business. Examples of economic occasions are the sale of snack chips PepsiCo, Providing of telephone services by AT & T, and fee of wages by Ford Motors Company. Examples of non-economic occasions of the identical firms might be appointing a new manager by PepsiCo and departure of a trusted worker from AT & T.

Recording Economic Events:
Once an organization like PepsiCo identifies financial events, it records those occasions to be able to present a history of its monetary activities. Recording consists of keeping a systematic, chronological diary of occasions, measured in dollars and cents. Recording comes by way of a process called double entry accounting system. The system consists of recording, summarizing, checking mathematical accuracy and preparing statement of financial position.

Speaking Consolidate Monetary Data:
Finally, PepsiCo communicates the collected information to interested customers via accounting reports. The commonest of those reports are called Monetary Statements. Parties interested into business's monetary information may be classified into three principal categories. The interested parties are Inside, External and Government. To make the reported monetary info significant, PepsiCo reports the zicale1 recorded knowledge in a standardized way. It accumulates data resulting from similar transactions. For instance, PepsiCo accumulates all sales transactions over a sure time period and reports the info as one amount within the company's financial statements such knowledge are said to be reported within the aggregate. By presenting the recorded information in the mixture, the accounting process simplifies a multitude of transactions and makes a series of activities understandable and meaningful.

A vital aspect in communicating financial occasions is the accountant's ability to investigate and interpret the reported information. Analyses involve use of ratios, percentages, graphs, and charts to highlight, vital financial traits and relationships. Interpretation entails explaining the makes use of, which means and limitations of reported data.



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