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The Concept of Accounting
Accounting is an data system which identifies, records, analyzes interprets and communicates the financial data of a monetary entity. Accounting consists of three basic activities - it identifies, records, and communicates the economic occasions of a company to interested users. Let's take a closer look at these three activities.
Identifying Financial Events:
Many events are occurring every day in a business. Some of them are affecting financial position of the business whereas, some don't. Occasions affecting monetary position of a business i.e. Assets=Liability+ Owner's Equity, are called Economic events and imagined to be recorded in accounting system. To determine financial events; a company selects the economic occasions related to its business. Examples of financial 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 events of the identical corporations is perhaps appointing a new manager by PepsiCo and departure of a trusted employee from AT & T.
Recording Financial Events:
As soon as a company like PepsiCo identifies financial events, it records these 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 system consists of recording, summarizing, checking mathematical accuracy and preparing assertion of financial position.
Communicating Consolidate Financial Data:
Finally, PepsiCo communicates the collected info to interested users by means of accounting reports. The most typical of these reports are called Financial Statements. Parties interested into enterprise's monetary info may be labeled into three major categories. The interested parties are Inside, External and Government. To make the reported financial data meaningful, PepsiCo reports the recorded data in a standardized way. It accumulates information resulting from comparable transactions. For example, PepsiCo accumulates all sales transactions over a sure time period and reports the data as one amount in the company's financial statements such data are said to be reported within the aggregate. By presenting the recorded data in the combination, the accounting process simplifies a multitude of transactions and makes a series of activities understandable and meaningful.
A vital aspect in speaking financial events is the accountant's ability to investigate and interpret the reported information. Analyses contain use of ratios, percentages, graphs, and charts to highlight, significant monetary tendencies and relationships. Interpretation involves explaining the makes use of, meaning and limitations of reported data.
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