3. A balance sheet

A balance sheet (or statement of financial position), is a summary of a firm’s assets, liabilities, and owners’ equity accounts at a particular time, showing the various money amounts that enter into the accounting equation. The balance sheet must demonstrate that the accounting equation does indeed balance. That is, it must show that the firm’s assets are equal to its liabilities plus its owners’ equity. The balance sheet is prepared at least once a year. Most firms also have balance sheets prepared semiannually, quarterly, or monthly.

4. An income statement

An income statement is a summary of a firm’s revenues and expenses during a specified accounting period. The income statement is sometimes called the statement of income and expenses. It may be prepared monthly, quarterly, semiannually, or annually. An income statement covering the previous year must be included in a corporation’s annual report to its stockholders

5. The importance of the above two statements

The information contained in these two financial statements becomes more important when it is compared with corresponding information for previous years, for competitors, and for the industry in which the firm operates. A number of financial ratios can also be computed from this information. These ratios provide a picture of the firm’s profitability, its short-term financial position, its activity in the area of accounts receivables and inventory, and its long-term debt financing. Like the information on the firm’s financial statements, the ratios can and should be compared with those of past accounting periods, those of competitors, and those representing the average of industry as a whole.

Answer the questions:

1. What is accounting? Give a short definition.

2. It is possible to manage a business operation without accurate and timely accounting information?

3. Who needs accounting information? Explain why.

4. What is the basis for accounting process?

5. State (изложите) the standard form of the accounting equation.

6. What is the balance sheet ? Give a short definition.

7. What must a balance sheet show?

8. What is an income statement?

9. What can be computed from the information contained in a balance sheet and an income statement?

10. Do the ratios computed from this information provide a picture of a firm’s profitability and its financial position?

11. Is this information for competitors?

Lexical exercises

Exercise 1. Fill in the missing words in the sentences below. Choose from the following. You should use each word more than once.

Account accounts accountant accounting accountancy

1. Can you check that the figures have been correctly in the bank…?

2. He is at university studying … .

3. The management of the company has not yet decided on their … policies.

4. A bookkeeper writes details of financial transactions in the … .

5. Most people in the profession read … magazines and journals in order to stay informed.

6. She’s been working as an … with the firm for several years now.

7. The directors of the company approve the … at the end of the … year.

8. The chief … has completed the draft … for this year.

9. Each branch maintains its own full … system.

10. They have opened an… for the consignment to Bombay.

11. … is really not an exact science.

12. A business manager needs some … knowledge in order to understand what he reads in

the company … .

Exercise 2. Add the word account, accounts or accounting to each of the words below:

1. …. methods 10. … book

2. … day 11. bank …

3. … equation 12. current …

4. … payable 13. deposit …

5. … principles 14. cost …

6. … period 15. managerial …

7. … procedures 16. numbered…

8. … receivable 17. profit and loss …

9. …standards 18. savings …

Exercise 3. Now complete the following, using the expressions of the above exercise.

1. Auditors are supposed to make sure that companies follow their stated …

2. Companies can choose from a variety of …, but they are not allowed to change them very often.

3. Lots of money obtained in illegal ways is deposited in … in Swiss banks.

4. The basic … is Assets= Liabilities + Owner’s Equity.

5. The … is one of the three basic financial statements.

6. … consist of money that is expected to be received. The contrary, … consist of money that is owed to other people.

7. The role … is to provide figures and statements that will aid decision-making.

Exercise 4. What is the meaning of the phrases in bold in the sentences (1-10) below? Choose the correct definition from the list (a-j) on the right.

How do you account for the sudden fall in the stock value? Agents buy and sell goods on their own account. They gave the solicitor a detailed account of the customer’s business deals in the last year. The draft accounts had to be adjusted on account of the discovery that a major debtor had gone bankrupt. Raw materials account for 30% of the manufacturing cost. They are regular customers in this shop and are now able to buy on account. On no account should these figures he released before the board meeting. When making decisions for the future the managers have to take this year’s poor performance into account. By all accounts, they will benefit greatly if the deal goes through. The advertising company has won two new accounts in South Africa.

people say report under no circumstances consider explain big customers for themselves because of on credit represent

Exercise 3. Complete the following words. (See example):

This company has supplied goods but has not received any money for them yet. Companies make this when they sell their goods for more than it costs them to make them. Companies make this when they sell their goods for less than it costs them to make them. Customers who have received goods but not paid for them yet. This is the name of the difference between the credit and debit side of an account. This is drawn up to check that the two sides of the accounts are the same. This is the name for buildings, machinery, money in the bank and money owed by customers. Money which is borrowed. The total sum of money which is supplied by the owners of the company to set it up. These are bought by people wishing to invest in the company. An official examination of the accounts. A statement of the financial position of the company.

CREDITOR P….T L….S D….RS B….C. T…L B…… A….S L… C…T.. S….S A…T B…..E S…T