The Purpose of Accounting

Accounting is surely an information system which identifies, records, analyzes interprets and communicates the economic data of an financial entity. Accounting is made up of three basic activities - it identifies, records, and communicates the cost-effective events of an organization to interested users. Consider a close look at these three activities.


Identifying Economic Events: Many events are happening on a daily basis in business. Some of them are affecting budget from the business whereas, some don't. Events affecting budget of the business i.e. Assets=Liability+ Owner's Equity, these are known as Economic events and allowed to be recorded in accounting system. To identify economic events; an organization selects auto events relevant to its business. Examples of economic events would be 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 precisely the same companies might be appointing a 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 to be able to give a good its financial activities. Recording contains keeping an organized, chronological diary of events, measured in money. Recording comes through a process called double entry accounting system. The device is made up of 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 the reports these are known as Fiscal reports. Parties interested into business's financial information could be classified into three main categories. The your clients are Internal, External and Government. To make the reported financial information meaningful, PepsiCo reports the recorded data in the standardized way. It accumulates information resulting from similar transactions. As an example, PepsiCo accumulates all sales transactions over the certain time frame and reports your data jointly amount inside the company's fiscal reports such data are said to be reported from the aggregate. By presenting the recorded data within the aggregate, the accounting process simplifies a variety of transactions and makes a compilation of activities understandable and meaningful.

A vital element in communicating economic events may be the accountant's power to analyze and interpret the reported information. Analyses involve utilization of 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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