5.2 Read and translate the text How funds flow through a business

1. Basically, money or funds go into purchasing assets, paying operating expenses and producing income. The operating ex­penses include the cost of materials and supplies. The manufac­turer also must pay employee wages, rent or mortgage, insur­ance premiums and utility bills.

2. Some very small firms operate on a cash basis. They neither obtain credit nor borrow money. Other firms extend their re­sources through the use of credit. The owner of the firm invests some of his own money and has a lot more of other people’s.

3. The businesses use money to buy assets like land, buildings and furnishings, tools, machines, and equipment. The manufacturer sometimes buys them with mortgage loans which he secures by the building or the equipment itself. In other words, the bank or insurance company really owns the property until the manufacturer has paid the mortgage in full. The use of debt, or credit, increases both the assets and the income of the pur­chaser. The use of borrowed money to make more money is called leverage.

4. If the manufacturer is sure that cash will be available at any time, he will need no cash reserve. But this rarely happens. Instead he always needs a reserve supply of cash on hand. And this poses a problem for management. Idle cash earns no profit and declines in value because of inflation. Cash is used to produce income. If a manager has some idle cash, he will put it into financial institutions to draw interest. Sometimes a company with excess funds will buy securities from one of the exchanges and let them earn income until the company needs funds. Then it will sell the securities to get the funds. These securities are called near money.

5.3 Answer the questions to the text:

1. What does money go into?

2. What are operating expenses?

3. What payments does a manufacturer have to make?

4. What basis do some of the very small firms operate on?

5. What does “the cash basis” mean?

6. How do the bigger firms extend their funds?

7. What do the businesses use their money for?

8. What does a manufacturer secure a mortgage loan by?

9. How does the use of credit affect a business? 10. What is the use of borrowed money to make more money called?

11. Does a manufacturer always need a cash reserve?

12. What problem does idle cash pose for management?

13. How does inflation affect cash?

14. What will a company do if it has some idle money on hand?

15. What are the securities called?

5.4 Find the English equivalents to the following phrases in the text:

текущие расходы; оплата труда работников; страховой взнос; коммунальные платежи; получать кредит; брать ссуду; увеличивать ресурсы; использование кредита; ипотечный заём; резервный запас; денежные средства в кассе; создавать проблему; неиспользуемые деньги; приносить прибыль; терять в цене; получать проценты; получить средства; высоколиквидные средства.

5.5 Make up ten English sentences using words from the active vocabulary of the lesson

5.6 Which passage of the text contains information on:

1) cash liquidity;

2) usage of borrowed money;

3) two sources of funds.

5.7 Are these statements true, false, or not mentioned in the text?

1. Firms with a good financial position can loan money at the lowest interest rate.

2. Idle cash earns higher profit than invested cash.

3. Most firms operate on a cash basis.

4. Managers prefer to invest idle cash.

5. Leverage is the use of borrowed money to make a profit.

6. Cash basis is the accounting method that recognizes revenues and expenses when cash is actually received or paid out.