58. The Role of Banks and Non-Banking Credit Organization in Modern Market Economy in Russia.Роль банков и небанковских кредитных организаций в современной рыночной экономике России.

The contemporary Russian legislation defines banks and non-bank institutions as two types of credit organization. Bank are authorized to grant loans and place deposits, while non-bank institutions can not.

Non-bank credit organization is a credit institution that has the right to carry out certain banking operations, established by the CB of the RF.

Features:

• Such an organisation in the credit system of the Russian Federation is highly specialized: they exist only in the settlements/clearing sphere.

• Russian NGOs have no right to obtain funds from legal entities and individuals in order to deposit them on its own behalf and for its own account.

• NGOs are prohibited from engaging in production, trade and insurance activities.

Types of non-bank credit organizations:

• Organizations engaged in clearing operations, such as opening and maintaining bank accounts of legal entities, settlements on behalf of legal entities on their bank accounts;

• Organizations engaged in deposit and lending operations permitted by the law;

• Organization of collection, which is entitled to collection of cash, promissory notes, payment and settlement documents

Banks in Russia serve the same function as banks in any other country with certain specifics: they mostly work with corporate clients. Over two-thirds of banks receive 50% or more of their interest income from lending to businesses. On average, across all banks, the share of income from lending to businesses is 59%.

Thus, the principal role banks play is serving corporate clients, and so do non-bank credit organizations (since they work with legal entities). This fact proved the specific of the Russian banking sector – focus on corporate lending.

However, recently, we can observe the trend of shifting major operations to consumer loans and investing in capital market through financial intermediaries or derive profit from interbank loans.

Besides, banks in Russia always had an intermediary role between CB and Ministry of Finance and economy (help to promote economic policy and regulate economy => bank-based economic system).

Financial accounting

59. Steps of the Accounting Cycle. Adjusting Entries (Deferrals and Accruals). Closing Entries and Work Sheet. Фазы учетного цикла. Регулирующие проводки (отложенные и начисленные). Закрывающие проводки и рабочая таблица.

The accounting cycle is the process followed by entities to analyze and record transactions, adjust the records at the end of the period, prepare financial statements, and prepare the records for the next cycle.

During the accounting period: 1. Identify and analyze transactions. Which events to include? Transactions include two types of events: external (exchanges of assets, goods, services by one party for assets, goods, services, or promises to pay by one or more other parties) and internal (these include certain events that are not exchanges between the business and other parties but still have a direct and measurable effect on the entity). 2. Record journal entries in the general journal as a debit and a credit. 3. Post amounts to the general ledger During the accounting period transactions are analyzed and recorded in the general journal in chronological order (journal entries), and the related accounts are updated in the general ledger (T-accounts).

At the end of the period: 4. Prepare a trial balance to determine if debits equal credits. Before adjusting the accounting records, managers normally review an unadjusted trial balance. A trial balance is a spreadsheet that lists the names of the T-accounts in one column, usually in financial statement order, with their ending debit or credit balances in the next two columns. Debit balances are indicated in the left column and credit balances are indicated in the right column. Then the two columns are totaled to provide a check on the equality of the debits and credits. Errors in a computer-generated trial balance may exist if wrong accounts and/or amounts are used in the journal entries. Once equality is established, the accounts on the trial balance can be reviewed to determine if there are any adjustments that need to be recorded.

5. Adjust revenues and expenses and related balance sheet accounts (record in journal and post to ledger).

• Revenues are recorded when they are earned (the revenue principle),

• Expenses are recorded when they are incurred to generate revenue (the matching principle),

• Assets are reported at amounts that represent the probable future benefits remaining at the end of the period, and

• Liabilities are reported at amounts that represent the probable future sacrifices of assets or services owed at the end of the period.

Companies wait until the end of the accounting period to adjust their accounts in this way because adjusting the records daily would be very costly and time-consuming. Adjusting entries are required every time a company wants to prepare financial statements for external users. Once equality is established, the accounts on the trial balance can be reviewed to determine if there are any adjustments that need to be recorded.

Adjusting entries are made for accrued and deferred items:

Deferred revenues – previously recorded liabilities that were created when cash was received in advance, and that must be reduced for the amount of revenue actually earned during the period.

Accrued revenues – revenues that have been earned but not yet recorded because cash will be received after the services are performed or good delivered.

Deferred expenses – previously recorded assets that were created when cash was paid in advance and that must be reduced for the amount of expense actually incurred during the period through use of the asset.

Accrued expenses – expenses that have been incurred but not yet recorded because cash will be paid after the goods or services used.

6. Close revenues, gains, expenses, and losses to Retained earnings.

Permanent accounts are the balance sheet accounts that carry their ending balance into the next accounting period. Temporary accounts are income statement accounts that are closed to Retained Earnings at the end of the accounting period. A closing entry transfers balances in temporary accounts to Retained Earnings and establishes zero balances in temporary accounts.

7. Post-closing trial balance should be prepared at the pre-last step of the accounting cycle to check that debits equal credits and all temporary accounts have been closed.

An accounting worksheet is large table of data, which may be prepared by accountants as an optional intermediate step in an accounting cycle. The main purpose of a worksheet is that it reduces the likelihood of forgetting an adjustment and it reveals arithmetic errors. A worksheet acts as a tool for an accountant and it is not intended to be used by third parties. It is an informal document.

8. Prepare a complete set of financial statements and disseminate it to users

The order for the financial statements is: income statement, statement of retained earnings, balance sheet, and then statement of cash flows. This order is important because information provided in the income statement is used in the statement of retained earnings, and information from the statement of retained earnings is used in the balance sheet.

60. US Generally Accepted Accounting Principles, Accounting Concepts, Accounting Regulatory Framework. IFRS, IASB. Общепринятые принципы бухгалтерского учета CША. Концепции учета. Регуляторная основа учета. МСФО, МССБУ.

GAAP is national system, exists in many countries and is individual across them.

In US prior to 1933, each company’s management largely determined its financial reporting practices. In 1934 the SEC has worked with organizations of professional accountants to establish groups that are given the primary responsibilities to work out the detailed rules that become generally accepted accounting principles (GAAP US). Today, the Financial Accounting Standards Board (FASB) has this responsibility.

NB! They used most common already exists principles in largest US companies only! More than that, in UK GAAP capital and reserves are different from US GAAP with its equity.

Financial accounting standards and disclosure requirements are adopted by national regulatory agencies. Since 2002, there has been substantial movement toward the adoption of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

NB! IFRS was constructed out of GAAPs and is artificially made product, trying to combine all the features of GAAPs. IFRS is oriented on IS, while GAAP in Europe is oriented on BS.

Although IFRS differ from GAAP, they use the same system of analyzing, recording, and summarizing the results of business activities. One place where IFRS differ from GAAP is in the formatting of financial statements.

Although financial statements prepared using GAAP and IFRS include the same elements (assets, liabilities, revenues, expenses, etc.), a single, consistent format has not been mandated. Consequently, various formats have evolved over time, with those in the U.S. differing from those typically used internationally. The formatting differences include:

Of the differences listed, balance sheet order is the most striking. GAAP begins with current items whereas IFRS begins with noncurrent items. Consistent with this, assets are listed in decreasing order of liquidity under GAAP, but internationally are usually listed in increasing order of liquidity. IFRS similarly emphasize longer-term financing sources by listing equity before liabilities and, within liabilities, by listing noncurrent liabilities before current liabilities (decreasing time to maturity).

Under IFRS, the income statement is usually titled the Statement of Operations. There is also a difference in how expenses may be reported:

Ground rules of accounting that should be followed in preparation of all accounts and financial statements. The four fundamental concepts are:

(1) Accruals concept: revenue and expenses are taken account of when they occur and not when the cash is received or paid out;

(2) Consistency concept: once an entity has chosen an accounting method, it should continue to use the same method, except for a sound reason to do otherwise. Any change in the accounting method must be disclosed;

(3) Going concern: it is assumed that the business entity for which accounts are being prepared is solvent and viable, and will continue to be in business in the foreseeable future;

(4) Prudence concept: revenue and profits are included in the balance sheet only when they are realized (or there is reasonable 'certainty' of realizing them) but liabilities are included when there is a reasonable 'possibility' of incurring them.

Other concepts include:

(5) Accounting equation: total assets of an entity equal total liabilities plus owners' equity;

(6) Accounting period: financial records pertaining only to a specific period are to be considered in preparing accounts for that period;

(7) Cost basis: asset value recorded in the account books should be the actual cost paid, and not the asset's current market value;

(8) Entity: accounting records reflect the financial activities of a specific business or organization, and not of its owners or employees;

(9) Full disclosure: financial statements and their notes should contain all pertinent data;

(10) Lower of cost or market value: inventory is valued either at cost or the market value (whichever is lower) to reflect the effects of obsolescence;

(11) Maintenance of capital: profit can be realized only after capital of the firm has been restored to its original level, or is maintained at a predetermined level;

(12) Matching: transactions affecting both revenues and expenses should be recognized in the same accounting period;

(13) Materiality: minor events may be ignored, but the major ones should be fully disclosed;

(14) Money measurement: accounting process records only those activities that can be expressed in monetary terms;

(15) Monetary measurement: only activities measurable in terms of money should be recorded;

(16) Objectivity: financial statements should be based only on verifiable evidence, comprising an audit trail;

(17) Realization: any change in the market value of an asset or liability is not recognized as a profit or loss until the asset is sold or the liability is paid off (discharged);

(18) Unit of measurement: financial data should be recorded with a common unit of measure (dollar, pound sterling, yen, etc.).