Text 1

INCOME

The second of the three economic issues is the question of income, that is, income distribution, the way in which income - that’s what people earn - is distributed or shared around.

A national income is not the money the government gets. The national income is the sum total of the incomes of all the people living in that country, in other words, everyone's income added together. In the same way one can think of world income as the total of all the incomes earned by all the people in the world.

Concerning the distribution of national and world income, some questions are to be asked: who, in the world, gets what share of these incomes. The distribution of income, either in the world or in a country, tells us how income is divided between different groups or individuals.

Before people can consume anything, however, they must do two things. First they must earn the income to buy the things they want. Then they must decide how the money will be spent. There are two ways to earn income: from work and from the use of wealth.

Most of the income comes from work. In return for working, people receive a wage or a salary. The term «wage» typically refers to the earnings of workers paid by the hour or unit of production. «Salary» refers to earnings paid on a weekly or monthly basis. How much you earn will depend on the kind of job, the abilities, the performance, and a number of other factors.

Wealth can be expressed as the value of the things you own. Adding the value of all your possessions, bank accounts, savings, and the like will give you the total amount of your wealth.

Used in certain ways, wealth can earn income. If you owned a house, you might be able to let others use it for a fee. In that instance economists would say that you used your wealth to earn “rent”. Wealth, in the form of money that is loaned to others or deposited in a savings account, will earn interest. As you can see, interest and rent are two forms of income that can be earned by wealth.

Other types of income are dividends and capital gains that can be generated from the wealth.

Text 2

INFLATION

Inflation is generally defined as a persistent rise in the general price level with no corresponding rise in output, which leads to a corresponding fall in the purchasing power of money.

Inflation varies considerably in its extent and severity. Hence, the consequences for the business community differ according to circumstances. Mild inflation of a few per cent each year may pose few difficulties for business.

However, hyperinflation, which entails enormously high rates of inflation, can create almost insurmountable problems for the government, business, consumers and workers. In post-war Hungary, the cost of having was published each day and workers were paid daily so as to avoid the value of their earnings falling.

Businesses would have experienced great difficulty in costing and pricing their production while the incentive for people to save would have been removed.

Economists argue at length about the causes of, and «cures» for, inflation. They would, however, recognize that two general types of inflation exist:

• Demand-pull inflation

• Cost-push inflation

Demand-pull inflation occurs when demand for a nation's goods and services outstrips that nation's ability to supply these goods and services. This causes prices to rise generally as a means of limiting demand to the available supply.

An alternative way that we can look at this type of inflation is to say that it occurs when injections withdrawals and the economy is already stretched (i.e. little available labor or factory space) and there is little scope to increase further its level of activity.

Alternatively, inflation can be of the cost-push variety. This takes place when firms face increasing costs. This could be caused by an increase in wages, the rising costs of imported raw materials and components or companies pushing up prices in order to improve their profit margins.

Text 3

Money and its functions

The main feature of money is its acceptance as the means of payment or medium of exchange. Nevertheless, money has other functions.

Money, the medium of exchange, is used in one-half of almost all exchange. People buy and sell goods in exchange for money. We accept money not to consume it directly but because it can subsequently be used to buy things we wish to consume. Money is the medium through which people exchange goods and services.

In barter economy there is no medium of exchange. Goods are traded directly or swapped for other goods. In a barter economy, the seller and the buyer each must want something the other has to offer. Each person is simultaneously a seller and a buyer. There is a double coincidence of wants.

Trading is very expensive in a barter economy. People must spend a lot of time and effort finding others with whom they can make mutually satisfactory swaps. Since time and effort are scarce resources, a barter economy is wasteful.

Money is generally accepted in payment for goods, services, and debts and makes the trading process simpler and more efficient.

Money can also serve as a standard of value. Society considers it convenient to use a monetary unit to determine relative costs of different goods and services. In this function money appears as the unit of account, is the unit in which prices are quoted and accounts are kept.

To be accepted in exchange, money has to be a store of value. Money is a store of value because it can be used to make purchases in the future.

Finally, money serves as a standard of deferred payment or a unit of account over time. When you borrow, the amount to be repaid next year is measured in money value.

Auditing

Auditing is a process in which an independent accountant-auditor examines a firm's accounting records and financial statements and offers an opinion on their accuracy and reliability.

The auditors do not monitor, they offer an opinion, and the audit process and audit procedures are complicated and manifold. The auditor's opinion is gradually being built up from a mass of detailed work to the final judgment through the planning and testing stages. The auditor normally starts with a study of the business environment the audited company is working in and performs a preliminary analytical review.

Then he should direct his attention to the financial statements, where the auditor's attention is directed towards the correctness of various assumptions made by the management for their preparation. For instance, the auditor needs to know if figures are complete and accurate and reflect what they should reflect, if income and expenses are recorded in the proper periods and if the legal position is reflected adequately.

Although the financial statements are the ultimate objectives of an audit, normally such audits cannot be completed without a proper study and evaluation of the accounting system and assessment of the internal accounting controls.

Defining the audit strategy the auditor has to decide whether to rely on internal controls or to resort to substantive testing applying analytical review procedures, such as tests in totals, comparison with budgets or even statistical analysis of figures.

The natural finalization of the audit process is the auditor's report, reflecting the auditor's opinion on the financial statements. Unfortunately, audits do not always end up in an approval of the financial statements. Any deviation from the unqualified opinion should be explained in the auditor's report, including the uncertainty or the disagreement that caused the auditor to qualify his opinion.