Unit 4 financial statements

TEXT 1. THE MAIN USERS OF ACCOUNTING INFORMATION

TEXT 2. DESIRABLE QUALITIES OF FINANCIAL INFORMATION

TEXT 3. THE ROLE OF ACCOUNTS

TEXT 4. THE TYPES AND THE TITLES OF ACCOUNTS

TEXT 5. ACCOUNTING COMMUNICATION THROUGH FINANCIAL STATEMENTS

TEXT 6. RELATIONSHIPS BETWEEN FINANCIAL STATEMENTS

TEXT 7. FINANCIAL STATEMENTS

TEXT 8. ASSETS

TEXT 9. FINANCIAL STATEMENTS ANALYSES

TEXT 10. THE BALANCE SHEET

Text 1 the main users of accounting information

Exercise 1.1

Study the vocabulary:

1. to make informed judgments and decisions	1. приймати інформативно обґрун­товані думки та рішення
2. livelihood	2. засоби до прожиття
3. to allocate available recourses	3. розміщувати наявні ресурси
4. scarce	4. недостатній; мізерний; рідкісний
5. to rely on	5. покладатися, сподіватися на
6. to increase wealth	6. збільшувати добробут
7. lender	7. кредитор
8. supplier	8. постачальник
9. to exercise a day-to-day control of the business	9. здійснювати щоденний контроль бізнесу

Exercise 1.2

Read and translate the text:

The purpose of accounting is to provide economic information which permits users to make informed judgments and decisions. They decide how to allocate available resources best. As a rule, resources are generally scarce in relation to needs, and so users rely on accounting reports to ensure the efficient and effective allocation of supplies.

It is possible to classify users of accounting information into major groups in the world of business. Users within each group are considered to have very similar information needs.

Owners normally invest in a business in order to increase their wealth. The major decision confronting owners and potential owners is whether or not to invest or retain an investment in a business. In order to make an investment decision of this nature owner need to assess the likely future returns from their investment. In addition, possible future risks must be considered. Owners and potential owners should be satisfied that the potential returns are adequate given the potential risks involved in the business.

Lenders can be divided into two groups: short-term lenders and long-term lenders.

Short-term lenders (i.e. those who lend money for up to a 12-month period) will normally be concerned with the 'liquidity' of the business. The term 'liquidity' refers to the availability of cash, or near-cash items such as short-term investments. Short-term lenders will normally view liquidity as an important indicator of the ability of the business to pay short-term obligations when they fall due.

Like owners, long-term lenders are concerned with the longer term prospects of the business. They are interested in likely future risks and rewards, and in the efficiency of management.

Suppliers of goods and services need to ensure that a business is able to pay for the goods and services provided. They will, therefore, be concerned with the liquidity of a business. It is quite common to find that some suppliers provide a business with a substantial and continuous flow of goods and services. For suppliers in this position, the long-term prospects of the business may be of great interest.

Managers exercise a day-to-day control of the business. In carrying out their duties they must make different kinds of economic decisions and will, therefore, require different kinds of accounting information.

Where customers regard a business as an important supplier of goods or services they will require information to satisfy themselves that the business can be relied upon as a continuing source of supply. The current financial condition of the business and likely future performance and prospects will, therefore, be of interest.

Employees will rely on a business for their livelihood and will often have a long-standing relationship with the business. Their concerns will be for security and prospects of employment and its financial rewards. Employees will require information concerning possible changes in employment levels, the conditions of service and the ability of the business to meet pay demands. Information relating to the performance and prospects of individual units of the business will be useful in addition to information concerning the progress of the business overall.

Governments may require information concerning a business for different reasons. Governments use information on profits made in order to assess liability for taxation. In addition, information concerning financial condition or profits may be useful in assessing the effects of government policies or for deciding on the level of grants or subsidies to be provided.

Governments sometimes wish to regulate the activities of certain businesses. For example, there may be a policy to prevent the growth of monopolies in business and to encourage the spread of competition. Such a policy may be seen as being in the best interests of the consumer. Where anti-monopoly policies are being pursued, governments may take a keen interest in the sales and profits achieved by large businesses.

The public. Businesses operate within a community. The workforce will often be drawn from the community, and the businesses may use community-owned resources such as the roads. Members of the public may, therefore, wish to assess whether or not the business is a 'good citizen'. To help make such an assessment it may be useful to receive information on such matters as employment policies, environmental policies and donations to community programmes.

Competitors may take a keen interest in the financial condition and performance of a business for various reasons.

Firstly, a competitor may consider taking over the business. In this case, it will have a particular interest in such information as the sales and profits achieved and the value of resources held by the business. Secondly, a competitor may require information concerning performance of the business in order to make comparisons of relative efficiency. Finally, a competitor may seek information concerning a business in order to predict future strategies. For example, the building up of large cash balances by a business may indicate the possible threat of a take-over bid in the future.

Exercise 1.3

Read the text again and put the users of accounting information in the correct order:

a) the public b) owners c) governments d) lenders e) competitors f) employees g) managers h) suppliers of goods and services

Exercise 1.4

Read the text again and find out whether the following statements are true or false:

1. Short-term lenders view liquidity as an important indicator of businesses' ability to pay short-term obligations when they fall due.

2. Suppliers of goods and services need to ensure that a business is able to pay for the goods and services provided.

3. The efficient allocation of resources requires the use of reliable information

4. It is impossible to classify the major users of accounting information.

5. When making investment decisions potential owners are not usually interested in assessing future returns from their investments.

6. Managers don’t need accounting information for carrying out their duties.

7. Governments never regulate the activities of certain businesses.

8. The public can wish to receive from the businesses information on such matters as employment policies, environmental policies and donations to community programmes.

9. Competitors may require information concerning performance of the business if they want to make relative comparisons.

Exercise 1.5

Read the text and fill in the gaps. Then read and translate:

The purpose of …1… is to provide economic …2… which permits users to make informed judgments and …3…. They decide how to …4… available resources best. As a rule, resources are generally …5… in relation to …6…, and so users rely on …7… to ensure the efficient and effective allocation of supplies.

It is possible to classify …8… of accounting information into major …9… in the world of business. Users within each group are considered to have very similar information …10 .