chapter
16
The financial cycle
Learning objectives
–To learn about the financial cycle business activities.
–To learn how to flow chart the financial cycle business
activities.
–To understand the processing of financial cycle transactions
using a computer.
–To know about the various mandatory financial reports.
–To learn about the control practices and procedures in the
financial cycle.
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervathamand D. Anandarajah. Slides prepared by
Kaye Watson.
16-1
key terms
•
•
•
•
•
•
asset register
debenture
ordinary shares
preference shares
register of debentures
retained earnings
• shareholders’ register
• statement of cash flows
• statement of financial
performance
• statement of financial
position
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-2
Financial cycle business activities
• The functions of the financial cycle are:
– raising capital by investments from owners
– raising capital by loans from creditors
– recording capital-raising transactions in the general
ledger
– acquiring productive assets using capital and recording
the acquisition
– maintenance of assets
– recording various maintenance transactions
– summarising accounting data
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-3
Financial cycle business activities
• The functions of the financial cycle are grouped into
three broad categories:
– Raising capital
– Acquiring and maintaining assets
– Financial reporting
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-4
Financial cycle business activities
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-5
Raising capital
• Shares
– incorporated companies raise capital by asking
the public to apply for shares (ordinary or
preference)
• Debentures
– borrowings secured by a charge over the assets
of the borrowing organisation
• Retained earnings
– profits retained for future business use
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-6
Raising capital
• Long-term loans
– loans from banking or other financing institutions
• Other sources of capital include:
– trade creditors
– factoring of debtors
– bank loans
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-7
Acquiring and maintaining assets
• Capital raised is invested in fixed assets
• Fixed assets are used to expand business
operations or replace expended assets
• Maintenance of fixed assets is recognised as
a cost of business operations
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-8
Financial reporting
• Used to make accounting entries and periodend adjustments, and produce financial
reports or statements
• Trial balance is the first step taken when
preparing financial statements
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-9
Financial reporting
• Statement of financial performance
– shows the profit or loss made by the organisation
• Statement of financial position
– reveals the organisation’s financial position at any point
in time
• Statement of cash flows
– shows the cash situation at the beginning and end of an
accounting period as well as how it has changed
between the two dates
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
16-10