External users are the persons who are outside the organisation but make use of accounting information for their own purposes. They are:
(i) Creditors and Financial institutions:
1. Suppliers of goods and services, commercial banks, public deposit holders, debenture holders etc; are included in this category.
2. They are interested in the liquidity position and repaying capacity of the business to know the safety of getting the interest and get back the principal amount.
(ii) Investors:
1. Persons who are interested in investing their surplus funds should know about the financial condition of a business unit while making their investment decisions.
2. They are more interested in future earning and risk.
(iii) Customers :
1. Those who use the products and services of a firm are interested in knowing the justification for the prices charged to them.
2. They examine the expenses, sales and profits to see if they are paying fair prices for the products and services.
(iv) Tax authorities:
1. Accounting information helps them in computing goods and services Tax, Income tax etc., to be collected from business units.
2. They scrutinise the revenues and expenses of business firms to determine their accuracy. "
(v) Government:
1. Government also administers prices of certain trades.
2. In such cases, government agencies have to ensure that the guidelines for pricing are followed.
vi) Researchers:
Researchers to carry out their research can make use of the published financial statements in their analysis and evaluation.

There are three bases of accounting in common usage, namely
(i) Cash basis
(ii) Accrual or mercantile basis
(iii) Mixed or hybrid basis
(i) Accounting on cash basis:
1. Under cash basis of accounting, actual cash receipts and actual cash payments are recorded.
2. Credit transactions are not recorded till the cash is actually received or paid.
3. Under the basis,
a) Any income received  
b) Any expenditure paid  
c) Any asset purchased for which cash is paid.
d) Any liability paid during the accounting period. Whether related to the past, present or future is taken into account.
(ii) Accrual or mercantile basis :
1) Under accrual basis of accounting, the income whether received or not but has been earned or accrued during the period and expenses incurred whether paid or not are recorded.
2) Under this basis,
a) Any income earned whether received or not
b) Any expenditure incurred whether paid or not
c) Any asset purchased whether cash is paid or not
d) Any liability incurred whether paid or not during the accounting period is recorded.
(iii) Hybrid or mixed basis :
1. Under mixed basis of accounting both cash basis and accrual basis are followed.
2. Incomes are generally recorded on cash basis whereas expenses are generally taken on accrual basis.

The main functions of accounting are as follows:
(i) Measurement:
1. The main function of accounting is to keep systematic record of business transactions, post them to the ledger and ultimately to prepare the final accounts.
2. Accounting works as a tool for measuring past performance of the business enterprises.
(ii) Forecasting:
 With the help of the various tools of accounting, future performance and financial position of the business enterprises can be forecasted.
(iii) Comparison:
1. Accounting helps to assess the actual performance with the targets.
2. It also discloses the accounting policies.
(iv) Decision making:
1. Accounting assists the management in planning, evaluation of performance, control and decision making by providing required information to various users of accounts.
2. This will help them to take various decisions on cost, price, sales, volume, etc.
(v) Control:
1. As accounting works as a tool of control, the strengths and weaknesses are identified to provide feedback on various measures adopted.
2. It serves as a tool for evaluating compliance of business policies and programmes.
(vi) Assistance to Government regulations:
Government needs full information on the financial aspects of the business, so that proper tax can be levied on the income earned by the enterprises.

Accounting cycle is the sequence of steps involved in the accounting process. Accounting cycle starts with the identification and recording of financial transactions of an organisation and ends with the preparation of final accounts for the accounting year. The steps involved are:
(i) Identifying the transactions and journalising :
(1) The first step in the accounting process is identifying the financial transactions of a business.
(2) All the monetary transactions are recorded in the books of original entry called journals.  
(ii) Posting and balancing:
(1) Transferring the entries from the journal. to the ledger is called posting.
(2) In the ledger, entries are made in each account after classifying them under common heads. Finding the difference between the total of the debit column and credit column of all the ledger accounts is called balancing.
(iii) Preparation of trial balance:
(1) The list of ledger balances namely trial balance is prepared as the next step.
(2) On the basis of ledger balances the financial statements are prepared.
(iv) Preparation of trading account:
(1) Next step is preparation of trading account for a particular accounting period.
(2) All the direct revenues and direct expenses are transferred to trading account.
(3) The balance in the trading account is the gross profit or gross loss.
(v) Preparation of profit and loss account:
(1) Profit and loss account is prepared next for a particular accounting period.
(2) All the indirect revenues and indirect expenses along with gross profit or gross loss are transferred to profit and loss account.
(3) The balance in the profit and loss account is the net profit or net loss.
(vi) Preparation of balance sheet:
(1) A statement showing the balances of assets and liabilities namely balance sheet is prepared as the final step in the accounting process.
(2) It is prepared on a particular date, normally, on the last day of the accounting period.

(i) In the earliest days of civilisation, accounting was done by stewards who managed the properties of wealthy people. They rendered accounts periodically to the owners of property.
(ii) The stewardship accounting is said to be the root of accounting. Records of debit and credit were found in the 12^th century itself.
(iii) In 1494, Luca Pacioli an Italian developed double-entry book-keeping system.
(iv) Due to the industrial revolution in the 18th and 19^th centuries, large scale operations were carried on and joint stock companies emerged as an important form of organisation which required separation of ownership from management.
(v) Hence, to safeguard the interest of owners and investors, the business establishments required detailed information about business which paved the way for development of comprehensive financial accounting information system.
(vi) In the 20^th century, the need for analysis of financial information for managerial decision making caused emergence of Management Accounting as a separate branch of accounting.
(vii) Though accounting was individual centric in the initial stage of evolution of accounting, it has gradually developed into Social Responsibility Accounting in the 21^st century, due to the vast growth in business activities as a result of development in various fields.