III. Here are six statements about the text. Some of them are true and some are false. Read each statement and then check the text quickly whether it is true. Do one at a time.

1. Financial statement analysis highlights important relationships in the financial statements.

2. As is known, decision-making always calls for the ability to sort out relevant information and to make adjustments for changing conditions.

3. Different users may use the tools of financial analysis in the same way.

4. It should be said that past performance cannot be an important indicator of future performance.

5. The analysis of current position will never tell you exactly where the business stands today.

6. The assessment of future potential and relevant risks is possible on the basis of company's current position.

V. Re-read the text to answer the following questions.

1. What is meant by financial statement analysis?

2. What is the importance of financial statement analysis?

3. What role does financial statement analysis play in decision-making?

4. In what way do different users use the tools of financial analysis?

5. What do creditors and investors use financial statement analysis for?

6. What is a good indicator of future performance?

7. What can show the analysis of current position of a business?

8. What does an investor use the past and present information for?

9. Why are creditors interested in the past and present information?

10. What makes investments or loans less risky?

Accounts and balance sheets

I. Read the following words and word-combinations:

a ledger account, comput­ing, amounts, a trial balance, merely, equality, a specified point of time, to assure, to measure.

Periodically, each ledger account is balanced. This is done by comput­ing the total debits and total credits, and then calculating the difference between these two amounts. The difference is termed the "balance" in the account and is described as a debit balance or a credit balance, according to which side of the account has the largest total.

As soon as all of the account balances have been calculated, a trial balance can be prepared. It is merely an accounting tool used to test the equality of the debits and credits within the ledger at a specified point of time. It does not prove that the accounting process is without error, but merely assures that the sum of the debit balances equals the sum of the credit balances. The trial balance tests the mathematical accuracy of such things as footing journals (the process of totaling columns), posting to the proper side of the ledger, and balancing the ledger accounts.

From the Trial Balance, prepared by the bookkeeper, the accountant creates a Profit and Loss Statement and Balance Sheet.

A Profit and Loss Statement or an Income Statement shows the income or loss of the company for the accounting period (normally one year). The Profit and Loss Statement is made only on the basis of those accounts of the Ledger which affect the profit and loss of the company. One might compare the statement to a movie camera. Unlike the snapshot, which shows only position at a given moment, the movie shows just what took place along the way. Revenue and expense accounts are set up to measure the business activity during a particular period, and these accounts are summarized and presented in the income statement.

The Profit and Loss Statement may contain the following items: sales, trading profit, depreciation, rent received, interest paid, profit before tax, tax, profit after tax, dividends, profit retained, earnings per share.

The other accounts of the Ledger which reflect the assets, liabilities and capital of the firm, make up a Balance Sheet. This shows the net worth or book value of the company.

Comments

to balance an account – підбивати баланс у рахунку

a trial balance – пробний баланс

to comput­e – підрахувати

A Profit and Loss Statement (syn. an Income Statement) – прибутковий звіт

to create – створювати

a movie camera – кінокамера

a snapshot – моментальний знімок

revenue and expense accounts – рахунки прибутків та витрат

depreciation – знецінення

to retain – утримувати (прибутки після розподілу)

earnings per share – прибутки від акцій