1. © 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 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.

2. © 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 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

3. © 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: –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

4. © 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 The functions of the financial cycle are grouped into three broad categories: –Raising capital –Acquiring and maintaining assets –Financial reporting

5. © 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 Financial cycle business activities

6. © 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 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

7. © 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 Raising capital Long-term loans –loans from banking or other financing institutions Other sources of capital include: –trade creditors –factoring of debtors –bank loans

8. © 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 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

9. © 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 Used to make accounting entries and period- end adjustments, and produce financial reports or statements Trial balance is the first step taken when preparing financial statements

10. © 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 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