Text 1 The Balance Sheet

1.  Read Texts 1 and 2 and put down the new business terms.

2.  Translate the texts.

The complex organization of a modern firm makes it important to keep systematic records of the claims of different classes of people against it. The accounting instrument employed for this purpose is called a balance sheet of financial position. On the left side of the sheet are listed all the wealth and all the claims to wealth owned by the firm, as well as the value of each. These are the firm’s assets.

Assets are usually classified and listed in order of their liquidity, that is, by the ease with which they can be converted into money. Cash and bank accounts, the most liquid asset, are listed at the top, then accounts receivable (bills due from customers and others), which are somewhat less liquid. Land and buildings that take time and trouble to sell are listed last.

On the right side of the balance sheet are listed all the claims against the firm’s assets. Liabilities are debts owed to people outside the firm. They are listed first, usually according to their permanence.

Current liabilities, which are least permanent, include: bills and accounts payable to individuals and to other firms; amounts owed to banks on short-term notes; payroll due to workers; and other debts due to coming in the immediate future. Outstanding bonds are a longer-term liability.

The residual, or balance, left over after subtracting all liabilities from the total value of assets, is the ownership equity.

The statement is called a “balance sheet” because the total of the claims must exactly equal, or balance, the total of the assets. It simply that any part of the value of the assets not owed to somebody else is automatically part of the owners’ equity.

The balance sheet summarizes the firm’s financial position at a given moment of time, and it necessarily changes from moment to moment to reflect the changes in that position, as the firm does business.

Exercises

1. Find the English equivalents in the text:

систематическая регистрация, балансовый отчет, финансовое положение, материальные ценности, актив, пассив, ликвидность, наличные деньги, банковский счет, счет к оплате, клиент, вносить в список, текущие обязательства, краткосрочный вексель, долгосрочное обязательство, платежная ведомость, акция.

2. Match the words from list A with their synonyms from list B:

A. systematic, to own, value, cash, to convert, current, permanent, individual, equity, total, fiscal.

B. person, to turn, regular, financial, share, sum, present, constant, money, cost, to possess.

3. Give derivatives of the following words and translate them:

to organize, system, to differ, to account, finance, class, liquid, to owe, busy.

4. Give possible translations of the words:

record, instrument, wealth, bond, liquid, current, individual, term, statement, sheet.

5. Write definitions for the following notions:

balance sheet, financial position, wealth of the firm, assets of the firm, liquidity of the firm, current liabilities, payable account, payable bill, short-term note, long-term note, long-term liability, payroll, balance, ownership equity.

6. Answer the questions:

1. What is a balance sheet?

2. How is a balance sheet put in order?

3. What constitutes the firm’s assets?

4. In what way are the assets classified?

5. What is listed on the right side of the balance sheet?

6. What are liabilities ?

7. How are liabilities listed?

8. What is the ownership equity?

9. What does the term “balance sheet” mean?

10. What does the balance sheet summarize?

7. Speak on the following topics:

1. The statement of financial position of the firm.

2. Assets and liabilities.

3. Current liabilities.

4. Liquidities.

5.  Ownership equity.