What Are The Three Accounting Activities? [Notes with PDF]
In this article, we will learn in-depth about the three accounting activities and much more.
Three Accounting Activities
Every day numerous events occur in our lives. Economic events are visible in private, institutional spheres in every area of society. The number of such events is numerous and diversified. Without the right one, it is difficult to know the cumulative effect of these events by methodology and its application.
The overall outcome and impact of those economic events are dealt with only by accounting. Accounting records, classify, and summarize all business transactions. Therefore, it is possible to determine the financial position of a company that will lead to proper decisions being taken.
Accounting consists of three fundamental activities:
- Identification
- Recording
- Communication
It identifies, records, and communicates an organization’s economic events to interested users.
Now we try to understand these three activities more closely.
1. Identification
As a starting point for the accounting process, a business identifies the economic events relevant to its business. Economic events include selling and buying goods, paying salaries and wages, outstanding services, paying a dividend, charging a depreciation, etc.
2. Recording
Accounting’s second most important function is that of recording. That is, one of the most important functions of accounting is to permanently record the transaction in a specific book of accounts by measuring money after identifying economic or financial events.
When a company like Tyra International identifies economic events, it records these events to give an account of financial activities.
The recording consists of maintaining the monetary measurements of a systemic, chronological journal of events. Tyra International also classifies and summarizes economic events in the recording.
3.Communication
After identifying and recording financial events, the result should be communicated to those who are interested. Because the information will be useless if it is not communicated to the appropriate parties. As a result, accounting’s communication function is extremely important.
The work of informing information is primarily accomplished through the creation of various accounts. For example, at the end of a certain period of time, an organization prepares a financial statement. As a result, interested parties can get a sense of the organization’s financial situation.
Finally, with accounting reports, Tyra International communicates information gathered to interested users. The most common of the reports is the financial statements. In order to make the financial information provided meaningful, Tyra International publishes standardized reports based on the data collected.
For example, over a certain period, Tyra International collects all sales transactions and reports the information in the financial statements of the company. The aggregate should report such data.
The accounting process simplifies many transactions by presenting the recorded data in the aggregate and renders a number of activities easily understandable and meaningful.
An important element for the communication of economic events is the ability of the accountant to analyze and interpret the reported information.
The analysis involves ratios, percentages, graphs, and charts in order to demonstrate substantial financial trends and relations. Interpretation includes an explanation of the use of the information reported, its significance, and limits.
Therefore, accounting is the way in which the economic information is identified, measured, and communicated to the interested users.
You can also read:
- What is accounting? Objective, importance, and History of Accounting.
- Why is accounting called the language of business?
- What are the steps of the accounting cycle?
- 3 Golden rules of Accounting
