Get Ready for the Postgraduate Entrance English Exam. Working with Texts. Часть 1. Учебное пособие

2. Match the words given in the left column with the words in the

Final test III

1. Match the Russian terms on the left with the English ones on the

2. Match the English terms on the left with the Russian ones on the right.

1. deferred payment

2. token money

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3. Fill in the gaps with words from the list below.

1.A … can have very significant economic effects, particularly if it leads to monetary failure and the adoption of a much less efficient barter economy.

2.A bank generates profits from … on financial services and on the interest it charges for lending.

3.… are better able than individuals to bear the risks of lending out capital.

4.… is a tax on corporate earnings (and often includes capital gains) of a company.

5.Insurance, in law and economics, is a form of … primarily used to hedge against the risk of potential financial loss.

6.Private companies do not have government oversight and are generally not required to have their … audited.

1.corporation tax

2.financial statements

3.monetary crisis

4.risk management

5.intermediaries

6.transaction fees

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Глава IV Бухгалтерский учет

Unit 1

I. Information for study

Accounting

Introduction

It is not easy to provide a concise definition of accounting since the word has a broad application within businesses.

The American Accounting Association define accounting as follows: the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.

This definition is a good place to start. Let’s look at the key words in the above definition.

-It suggests that accounting is about providing information to others. Accounting information is economic information – it relates to the financial or economic activities of the business or organization.

-Accounting information needs to be identified and measured. This is done by way of a “set of accounts”, based on a system of accounting known as double-entry bookkeeping. The accounting system identifies and records “accounting transactions”.

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-The “measurement” of accounting information is not a straightforward process. It involves making judgments about the value of assets owned by a business or liabilities owed by a business. It is also about accurately measuring how much profit or loss has been made by a business in a particular period. As we will see, the measurement of accounting information often requires subjective judgment to come to a conclusion.

-The definition identifies the need for accounting information to be communicated. The way in which this communication is achieved may vary. There are several forms of accounting communication (e.g., annual report and accounts, management accounting reports) each of which serves a slightly different purpose. The communication need is about understanding who needs the accounting information, and what they need to know.

Accounting information is communicated using “financial state-

ments”.

What is the purpose of financial statements?

There are two main purposes of financial statements.

(1)To report on the financial position of an entity (e.g., a business, an organization).

(2)To show how the entity has performed (financially) over a particularly period of time (an “accounting period”).

The most common measurement of “performance” is profit.

It is important to understand that financial statements can be historical or relate to the future.

How accounting information helps businesses be accountable.

As we have said in our introductory definition, accounting is essentially an “information process” that serves several purposes.

– Providing a record of assets owned, amounts owed to others and monies invested.

– Providing reports showing the financial position of an organization and the profitability of its operations.

– Helps management actually manage the organization.

– Provides a way of measuring an organization’s effectiveness (and that of its separate parts and management).

– Helps stakeholders monitor an organization’s activities and performance.

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– Enables potential investors or fenders to evaluate an organization and make decisions.

There are many potential users of accounting information, including shareholders, lenders, customers, suppliers, government departments (e.g., Inland Revenue), employees and their organizations, and society at large. Anyone with an interest in the performance and activities of an organization is traditionally called a stakeholder.

For a business or organization to communicate its results and position to stakeholders, it needs a language that is understood by all in common. Hence, accounting has come to be known as the “language of business”.

There are two broad types of accounting information:

(1)Financial Accounts: geared toward external users of accounting information;

(2)Management Accounts: aimed more at internal users of accounting information.

Although there is a difference in the type of information presented in financial and management accounts, the underlying objective is the same – to satisfy the information needs of the user. These needs can be described in terms of the following overall information objectives: collection recording and classifying summarizing, interpreting and communicating, forecasting and planning.

The process by which accounting information is collected, reported, interpreted and actioned is called “Financial Management”. Taking a commercial business as the most common organizational structure, the key objectives of financial management would be to:

(1)create wealth for the business;

(2)generate cash, and

(3)provide an adequate return on investment bearing in mind the risks that the business is taking and the resources invested.

In preparing accounting information, care should be taken to ensure that the information presents an accurate and true view of the business performance and position. To impose some order on what is a subjective task; accounting has adopted certain conventions and concepts which should be applied in preparing accounts.

For financial accounts, the regulation or control of what kind of information is prepared and presented goes much further. UK and interna-

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tional companies are required to comply with a wide range of Accounting Standards which define the way in which business transactions are disclosed and reported. These are applied by businesses through their Accounting Policies.

The main financial accounting statements.

The purpose of financial accounting statements is mainly to show the financial position of a business at a particular point in time and to show how that business has performed over a specific period.

The three main financial accounting statements that help achieve this aim are:

(1)the profit and loss account for the reporting period;

(2)a balance sheet for the business at the end of the reporting pe-

riod;

(3) a cash flow statement for the reporting period.

A balance sheet shows at a particular point in time what resources are owned by a business (“assets”) and what it owes to other parties (“liabilities”). It also shows how much has been invested in the business and what the sources of that investment finance were.

It is often helpful to think of a balance sheet as a “snap-shot” of the business – a picture of the financial position of the business at a specific point. Whilst this is a useful picture to have, every time an accounting transaction takes place, the “snap-shot” picture will have changed.

By contrast, the profit and loss account provides a perspective on a longer time-period. If the balance sheet is a “digital snap-shot” of the business, then think of the profit and loss account as the “DVD” of the business’ activities. The story of what financial transactions took place in a particular period – and (most importantly) what the overall result of those transactions was.

II. Vocabulary

accounting n – бухгалтерский учет, счетоводство activities n – деятельность

annual report – годовой отчет assets n – активы, имущество

balance sheet – балансовый отчет, баланс bookkeeping n – бухгалтерия, счетоводство cash n – наличные деньги

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cash flow – движение наличности

cash flow statement – отчет о движении наличности customer n – клиент

double-entry n – двойная бухгалтерия effectiveness n – эффективность, действенность entity n – субъект

evaluate v – оценивать financial statement – баланс

Inland Revenue – внутренние бюджетные поступления lender n – кредитор, ссудодатель

liabilities n – пассив, денежные обязательства loss n – убыток

moneies n – денежные суммы profit n – прибыль, доход

profit and loss account – счет прибылей и убытков return n – доход, прибыль

shareholder n – акционер stake n – доля, часть supplier n – поставщик transaction n – операция

III. Exercises

1.Read the text.

2.Learn the vocabulary items by heart.

3.Translate the text in written form.

4.Retell the text using the following expressions and terms: set of accounts, double-entry bookkeeping, accounting transactions, annual report, management accounting reports, financial statement, financial accounts, management accounts, financial management, to create wealth, to generate cash, to provide return on investment, accounting standards, profit and loss account, balance sheet, cash flow statement, assets and liabilities.

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IV. Test IV (1)

1. Read the text again and decide which statements are true.

1.Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.

2.The most common measurement of “performance” is liability.

3.There are many potential users of accounting information, including shareholders, lenders, customers, suppliers, government departments, employees and their organizations, and society at large.

4.A balance sheet shows at a particular point in time assets and liabilities of a business.

2. Match the words given in the left column with the words in the

Unit 2

I. Information for study

Principles of Financial

Accounting Measurement

There are four basic principles of financial accounting measurement: (1) objectivity, (2) matching, (3) revenue recognition, and (4) consistency. The following discussion relates each of them to the financial accounting framework developed thus far.

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The principle of objectivity

Financial accounting information provides useful measures of performance and financial position. To do so, financial accounting statements must provide information about value: the value of entire companies, the value of company assets and liabilities, and the value of the specific transactions entered into by companies.

The economic value of an entity, an asset, or a liability is its present value, which reflects both the future cash flows associated with the entity, asset, or liability and the time value of money. Since financial accounting systems are concerned with measuring such value, the basic objective of financial reporting is to provide information that allows all interested parties to construct performance measures that reflect the present value of the company, its assets, and its liabilities. In other words, present value is the goal of financial accounting measurement.

There is, however, one critical problem with the present value calculation: it assumes that future interest rates and future cash flows are perfectly predictable. This assumption presents no problems in theory, but users of accounting measures of performance and financial position need reliable measures that can be audited at reasonable costs.

The principle of objectivity, which is perhaps the most important and pervasive principle of accounting measurement, states that financial accounting information must be verifiable and reliable. It requires that the values of transactions and of the assets and liabilities created by them be objectively determined and backed by documented evidence.

The principles of matching and revenue recognition

The matching principle, which states that the efforts of a given period should be matched against the benefits that result from them, underlies the financial accounting measures of operating performance. Applying this principle to the measure of net cash flow due to operating activities is relatively straightforward. It consists simply of matching the cash inflows and outflows that result from the operating activities of a given period. Applying the matching principle to revenues and expenses, however, in the measure of net income is somewhat more involved, as described below. Recall that the matching process is initiated when a company incurs a cost (e.g., pays wages, purchases equipment, invests in a security) to generate benefits, normally in the form of revenues. If the revenues are generated immediately, the cost is treated as an expense and

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appears on the income statement of the current period. If the revenues are expected to be realized in future periods, the cost is initially capitalized and appears on the balance sheet. In future periods, as the revenues are realized, the capitalized cost is converted to an expense, via an adjusting journal entry, and appears on the income statements of the future periods. Thus, costs incurred to generate revenues are matched against those revenues in the time periods when the revenues are realized.

The principle of consistency

The measurement principles of objectivity, matching, and revenue recognition are very general and, as such, can be applied to a variety of companies in a variety of business environments. These general principles, however, must be implemented through accounting methods, which are considerably more specific. These relatively specific methods are applicable to a much smaller set of situations.

To illustrate, the matching principle states that costs should be matched against the revenues they generate. While this principle designates that the cost of acquiring a fixed asset should be capitalized and depreciated, it provides little guidance on how the amount of depreciation should be calculated each period. An accounting method, such as straightline depreciation, must be chosen to apply the matching principle. Straight-line depreciation, which recognizes a constant amount of depreciation each period, however, is not an appropriate application of the matching principle for all fixed assets in all situations. In certain cases a method of depreciation that recognizes large amounts of depreciation in early periods and smaller amounts later may be a better way to match revenues and expenses.

Generally accepted accounting principles, therefore, allow for a number of different, acceptable methods that can be used to account for the assets, liabilities, revenues, expenses, and dividends on the financial statements. For example, several acceptable methods may be used to account for each of the following assets: accounts receivable, inventories, long-term investments, and fixed assets. Such variety exists for two related reasons: (1) no method is general enough to apply to all companies in all situations, and (2) generally accepted accounting principles are the result of a political process in which interested parties who face widely different situations are allowed and encouraged to provide input.

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