10. Read the following dialogue with your partner:

Paul:	I still don't know what to do.
Rodney:	You'd be silly to buy a $800 guitar if your wealth is only $509. You'd go broke.
McCloskey:	Yup. Technically speaking, you'd be "bankrupt," which just means that your liabilities are greater than your assets, so your wealth is negative.
Rodney:	Go to the Performing Arts building. They've got guitars you can borrow and use in the practice room.
Paul:	But I could borrow the money.
McCloskey:	And create a liability.
Rodney:	Don't expect any loans from me!
Paul:	I might sell my car. Or I could just use my credit card.
Rodney:	That's irresponsible. How would you ever pay it off?
McCloskey:	Another liability.
Paul:	I 'd work more.
McCloskey:	So you have an asset not accounted for above: your labor power, so to speak. It can generate a stream of income. But working more for pay has itself an opportunity cost---say that B+ you hope for in Economics?

11. Discuss with your partner what kind of problem Paul has got?

Even if he were to sell off his car, he still would not be able to buy the guitar he so badly wants. He could borrow the eight hundred dollars. The credit card company will not object to such an increase in his liabilities. Maybe his income from work and interest on his bank accounts and regular gifts from Mom is large enough to let him purchase the guitar.

12. Home reading. Read and translate the text. Suggest the title and give a presentation on the difference between financial and managerial accounting

It so happens that one of the least interesting business activities is also one of the most vital for its continued success. To avoid the dangers of falling into failure, one must keep his bills, invoices and tax demands in order.

Accounting information is stated in monetary forms and is designed to be useful in making economic decisions. These decisions are made both within and outside the firm.

The internal users of accounting data are managers of the firm or organization. Managerial accounting provides data for decisions in four basic spheres: financing, resource allocation, production and marketing. Most of the information used in managerial accounting is expressed in terms of cost.

Financial accounting reports are prepared for the use of external parties such as shareholders and creditors, whereas managerial accounting reports are prepared for managers inside the organization.

This contrast in basic orientation results in a number of major differences between financial and managerial accounting, even though both financial and managerial accounting often rely on the same underlying financial data. In addition to the to the differences in who the reports are prepared for, financial and managerial accounting also differ in their emphasis between the past and the future, in the type of data provided to users, and in several other ways. Since planning is such an important part of the manager's job, managerial accounting has a strong future orientation.

A firm’s efficiency depends on the ability of its managers to keep down the costs of operations. All firms – merchandising, service or manufacturing – incur three types of expenses: production costs (costs of goods sold), selling costs and administration costs (overheads). Job performance of managers is often evaluated on the basis of their ability to forecast and control these expenses. Costs are also measured for product pricing, planning of future operations, etc.

The external users of accounting data can be classified as 1) stockholders; 2) creditors and lenders; 3) employees and their unions; 4) customers; 5) government agencies. They use the information provided by financial accounting that generally relates to the firm as a whole and is prepared in the form of financial statements.

Financial statements provide information on a firm’s financial position, on changes in this position, and on the results of operations (profitability). In simple terms, they compare what the company owns to what it owes, what it earned to what it spent.

Financial accounting is mandatory; that is, it must be done. Various out side parties such as Securities and exchange commission (SEC) and the tax authorities require periodic financial statements. Managerial accounting, on the other hand, is not mandatory. A company is completely free to do as much or as little as it wishes. No regularity bodies or other outside agencies specify what is to be done, for that matter, weather anything is to be done at all. Since managerial accounting is completely optional, the important question is always, "Is the information useful?" rather than, "Is the information required?" (2500)