Three activities to identify economic events a

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Three ActivitiesToidentifyeconomic events, a company selects theeconomic events relevant to itsbusiness. Examples of economic events are the sale of snack chips byPepsiCo,providing of telephone services byAT&T, and payment of wages byFord MotorCompany.Explain what accounting is.S T U D Y O B J E C T I V E 11The appendix to this chapter describes job opportunities for accounting majors and explains whyaccounting is such a popular major.
You should understand that the accounting processincludesthe bookkeepingfunction.Bookkeepingusually involvesonlythe recording of economic events. It istherefore just one part of the accounting process. In total, accounting involvestheentire process of identifying,recording,and communicating economic events.2What Is Accounting?5IdentificationRecordingCommunicationSelect economic events (transactions)Record, classify, and summarizePrepare accounting reportsAnalyze and interpret for usersAnnualNOKIAReportAnnualNOKIAReportIllustration 1-1Accounting process2The origins of accounting are generally attributed to the work of Luca Pacioli, an ItalianRenaissance mathematician. Pacioli was a close friend and tutor to Leonardo da Vinci and acontemporary of Christopher Columbus. In his 1494 textSumma de Arithmetica, Geometria,Proportione et Proportionalite,Pacioli described a system to ensure that financial information wasrecorded efficiently and accurately.Once a company like PepsiCo identifies economic events, itrecordsthoseevents in order to provide a history of its financial activities. Recording consists ofkeeping asystematic,chronological diary of events, measured in dollars and cents.In recording, PepsiCo also classifies and summarizes economic events.Finally, PepsiCocommunicatesthe collected information to interested users bymeans ofaccounting reports. The most common of these reports are calledfinancial statements. To make the reported financial information meaningful,PepsiCo reports the recorded data in a standardized way. It accumulates informa-tion resulting from similar transactions. For example,PepsiCoaccumulates all salestransactions over a certain period of time and reports the data as one amount in thecompany’s financial statements. Such data are said to be reportedin the aggregate.By presenting the recorded data in the aggregate, the accounting process simplifiesa multitude of transactions and makes a series of activities understandable andmeaningful.A vital element in communicating economic events is the accountant’s abilitytoanalyzeandinterpretthe reported information. Analysis involves use of ratios,percentages, graphs, and charts to highlight significant financial trends and rela-tionships. Interpretation involvesexplaining the uses,meaning,and limitations ofreported data. Appendix A of this textbook shows the financial statements ofPepsiCo, Inc.; Appendix B illustrates the financial statements ofThe Coca-ColaCompany.We refer to these statements at various places throughout the text. At

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Term
Spring
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Tags
Balance Sheet, BASIC ACCOUNTING EQUATION

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