Question

Based on own language with examples describes "Accounting is an information system that identifies records and communicates economic events of an organization to the interested users"explain the statement.

Answer 1

Accounting is the book keeping of business transactions. It is recording of transactions in business on day to day basis. It helps in summarising the transactions in a systematic format to understand the results in a better way. These are called “Financial statements” which end users rely on to take decisions regarding the business. The Financial statements referred to are the Income statement, Statement of Owner’s equity, Balance sheet and Cash flow statement. For example: Income statement reports the net profit or loss for the period. Statement of Owner’s equity gives the details of retained earnings balance, Balance sheet gives the statement of assets and liabilities as on a particular date and cash flow statement gives the movement of cash flows during the year.

Accounting is regarded as an information system since it gives the required information on a periodical basis for various requirements for example: applying loan, statutory purpose, serving shareholders. The various users who are interested in accounting information system includes shareholders, bankers, lenders, creditors, tax and regulatory agencies, government, potential investors, analysts, etc