The Purpose of Accounting

Accounting is an information system which identifies, records, analyzes interprets and communicates the economic data of your financial entity. Accounting contains 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.


Identifying Economic Events: Many events are happening each day in business. Many of them are affecting position with 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 identify economic events; an organization selects the cost-effective events highly relevant 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. Samples of non-economic events of the same companies could be appointing a brand new manager by PepsiCo and departure of a trusted employee from AT & T.

Recording Economic Events: Once a company like PepsiCo identifies economic events, it records those events as a way to provide a history of its financial activities. Recording consists of keeping a systematic, chronological diary of events, measured in dollars and cents. Recording comes via a process called double entry accounting system. The device is made up of 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 typical of these reports are classified as Fiscal reports. Parties interested into business's financial information may be classified into three main categories. The your clients 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 caused by similar transactions. By way of example, PepsiCo accumulates all sales transactions over the certain stretch of time and reports the information as one amount inside the company's financial statements such data are said to get reported in the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies numerous transactions and is really a number of activities understandable and meaningful.

A significant aspect in communicating economic events is the accountant's power 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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