Financial and Management Accounting | Set 1Page 2 of 14
Q. 1. What is accounting cycle? List the sequential steps involved inAccounting cycle?
Accounting cycle (Accounting Process)
Accounting is the process of identifying the transactions and events, measuring the transactions and eventsin terms of money, recording them in a systematic manner in the books of accounts, classifying or groupingthem and finally summarizing the transactions in a manner useful to the users of accounting information.
List of the sequential steps involved in Accounting cycle as follows.ACCOUNTINGENCOMPASSES
Identifying the transactions and events
: This is the first step of accounting process. It identifies thetransaction of financial character that is required to be recorded in the books of accounts. Transaction istransfer of money or goods or services from one person or account to another person or account. Eventshappen as a result of internal policies or external needs. Events of non financial character cannot be recordedeven though such events may have an impact on the operational results of the firm.
: This denotes expressing the value of business transactions and events in terms of money (in termsof rupees in India).
: It deals with recording of identifiable and measurable transactions and events in a systematicmanner in the books of original entry that are in accordance with the principles of accountancy.
: It deals with periodic grouping of transactions of similar nature that appear in the books of originalentry into appropriate heads by posting or transfer entries. For Eg: All purchases of goods made for cash or oncredit on different dates are brought to purchase account.
: It deals with summarizing or condensing transactions in a manner useful to the users. Thisfunction involves the preparation of financial statements such as income statement, balance sheet, statement ofchanges in financial position and cash flow statement.
Sikkim Manipal University | MBA-Spring 2010 | MB0043 Human Resource Management | Sem1
2. Prospective equity investors and lenders, to decide whether or not to invest.3. Investment analysts, money managers, and stockbrokers, to make buy/sell/holdrecommendations to their clients.4. Rating agencies (such as Moody's, Standard & Poor's, and Dun & Bradstreet), to assigncredit ratings.5. Major customers and suppliers, to evaluate the financial strength and staying power of thecompany as a dependable resource for their business.6. Labor unions, to gauge how much of a pay increase a company is able to afford in upcominglabor negotiations.7. Boards of directors, to review the performance of management.8. Management to assess9. Corporate raiders, to seek hidden value in companies with under priced stock.10. Competitors, to benchmark their own financial results.11. Potential competitors, to assess how profitable it may be to enter an industry.12. Government agencies responsible for taxing, regulating, or investigating the company.13. Politicians, lobbyists, issue groups, consumer advocates, environmentalists, think tanks,foundations, media reporters, and others who are supporting or opposing any particular publicissue the company's actions affect.14. Actual or potential joint venture partners, franchisors or franchisees, and other businessinterests who need to know about the company and its financial situation.