The Concept Of Accounting

The Concept Of Accounting

Accounting is an info system which identifies, records, analyzes interprets and communicates the financial information of a monetary entity. Accounting consists of three fundamental activities - it identifies, records, and communicates the economic occasions of a corporation to interested users. Let's take a better have a look at these three activities.

Identifying Financial Occasions:
Many occasions are happening every day in a business. A few of them are affecting financial position of the business whereas, some don't. Events affecting monetary position of a enterprise i.e. Belongings=Legal responsibility+ Owner's Equity, are called Financial events and presupposed to be recorded in accounting system. To establish financial occasions; a company selects the financial occasions relevant to its business. Examples of economic occasions are 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 occasions of the identical firms may be appointing a new manager by PepsiCo and departure of a trusted employee from AT & T.

Recording Economic Events:
As soon as an organization like PepsiCo identifies economic events, it records those occasions so as to provide a history of its financial activities. Recording consists of keeping a scientific, chronological diary of events, 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 making ready statement of monetary position.

Communicating Consolidate Financial Data:
Finally, PepsiCo communicates the collected info to interested users by the use of accounting reports. The commonest of those reports are called Financial Statements. Parties interested into enterprise's financial info may be labeled into three fundamental categories. The interested parties are Inner, External and Government. To make the reported monetary data meaningful, PepsiCo reports the recorded knowledge in a standardized way. It accumulates information resulting from related transactions. For instance, PepsiCo accumulates all sales transactions over a sure time period and reports the data as one amount within the firm's monetary statements such information are mentioned to be reported in the aggregate. By presenting the recorded information within the aggregate, the accounting specialty process simplifies a large number of transactions and makes a collection of actions understandable and meaningful.

A vital element in communicating financial occasions is the accountant's potential to analyze and interpret the reported information. Analyses involve use of ratios, percentages, graphs, and charts to highlight, significant financial tendencies and relationships. Interpretation involves explaining the makes use of, that means and limitations of reported data.

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