Additional material text 1. The balance sheet

Financial statements are the final product of the accounting process. They provide information on the financial condition of a company. The balance sheet, one type of financial statement, provides a summary of what a company owns and what it owes on one particular day.

Assets represent everything of value that is owned by a business, such as property, equipment and accounts receivable. On the other hand, liabilities are the debts owed by a company – for example, to suppliers and banks. If liabilities are subtracted from assets (assets – liabilities), the amount remaining is the owners’ share of a business. This is known as owners’ or stockholders’ equity.

One key to understanding the accounting transactions of a business is to understand the relationship of its assets, liabilities, and owners’ equity. This is often represented by the fundamental accounting equation: assets equal liabilities plus owner’s equity.

Assets + Liabilities + Owners’ Equity

These three factors are expressed in monetary terms and therefore are limited to items that can be given a monetary value. The accounting equation always remains in balance; in other words, one side must equal the other.

The balance sheet expands the accounting equation by providing more information about the assets, liabilities, and owner’s equity of a company at a specific time (for example, on December 31, 2005). It is made up of two parts. The first part lists the company assets, and the second part details liabilities and owners’ equity. Assets are divided into current and fixed assets. Cash, accounts receivable, and inventories are all current assets. Property, buildings, and equipment make up the fixed assets of a company. The liabilities section of the balance sheet is often divided into current liabilities (such as accounts payable and income tax payable) and long-term liabilities (such as bonds and long-term notes).

The balance sheet provides a financial picture of a company on a particular date, and for this reason it is useful in two important areas. Internally, the balance sheet provides managers with financial information for company decision-making. Externally, it gives potential investors data for evaluation of the company’s financial position.

Notes to the text:

accounts receivable - дебиторская задолженность

accounts payable - счета к платежу

current and fixed assets – оборотные и основные фонды

Exercise1. Give definitions to the following terms:

1. Assets are …

2. Liabilities are …

3. Owners’ equity is…

4. A balance sheet is …

5. A balance sheet provides …

6. An accounting equation is …

7. Current assets are…

8. Fixed assets are …

Text 2. What is accounting?

1. Accounting has been called “the language of business”. Perhaps a better term is “the language of financial decisions”. The better you understand the language, the better you can manage the financial aspects of living. Personal financing planning, investments, loans, car payments, income taxes, and many other aspects of daily life are based on accounting. A recent survey indicates that business managers believe it is more important for college students to learn accounting than any other subject. Other surveys show that persons trained in accounting and finance make it to the top of their organizations in greater numbers than persons trained in any other field. Indeed, accounting is an important subject.

3. Accounting is the system that measures business activities, processes that information into reports and communicates these findings to decision makers. Financial statements are the documents that report on an individual’s or an organization’s business in monetary amounts.

Is our business making a profit? Should we start up a new line of women’s clothing? Are sales strong enough to warrant opening a new branch outlet? The most intelligent answers to business questions like these use accounting information. Decision makers use the information to develop sound business plans. As new programs affect the business’s activities, accounting takes the company’s financial pulse beat. The cycle continues as the accounting system measures the results of activities and reports the results to decision makers.

4. Bookkeeping is a procedural element of accounting as arithmetic is a procedural element of mathematics. Increasingly, people are using computers to do much of the detailed bookkeeping work at all levels – in households, business, and organizations of all types.

Ответьте на следующие вопросы к тексту:

Why has accounting been called “the language of financial decisions”?

Why is it more important for college students to study accounting and finance?

What are financial statements?

Why accounting information is so necessary for managers (decision-makers)?

What is the difference between accounting and bookkeeping?