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Accounting is an information system which identifies, records, analyzes interprets and communicates the economical data of your financial entity. Accounting consists of three basic activities – it identifies, records, and communicates the economical era of a corporation to interested users. Consider a closer inspection at these three activities.
Identifying Economic Events: Many events are happening every day in business. A lot of them are affecting financial position from the business whereas, some don’t. Events affecting budget of the business i.e. Assets=Liability+ Owner’s Equity, are called Economic events and meant to be recorded in accounting system. To distinguish economic events; an organization selects the cost-effective events relevant to 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. Types of non-economic era of the same companies could possibly be appointing a new manager by PepsiCo and departure of the trusted employee from AT & T.
Recording Economic Events: Once a company like PepsiCo identifies economic events, it records those events to be able to give a good reputation for its financial activities. Recording consists of keeping a systematic, chronological diary of events, measured in money. Recording comes via a process called double entry accounting system. The machine is made up of recording, summarizing, checking mathematical accuracy and preparing statement of financial position.
Communicating Consolidate Financial Data: Finally, PepsiCo communicates the collected information to interested users through accounting reports. The commonest of the reports are called Fiscal reports. Parties interested into business’s financial information might 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 inside a standardized way. It accumulates information resulting from similar transactions. For example, PepsiCo accumulates all sales transactions over a certain stretch of time and reports the info jointly amount in the company’s fiscal reports such data have been proved being reported within the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies many transactions and produces a group of activities understandable and meaningful.
A significant aspect in communicating economic events may be the accountant’s power 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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