Vocabulary:

rate of interest – відсоткова ставка

appropriate – належний, відповідний

immediate future – найближче майбутнє

annual – щорічний

item – предмет, найменування товару

easy matter – легка справа

standing order – постійне платіжне доручення

to add – додавати

to withdraw money – знімати гроші з рахунку

available – наявний, доступний

assumption – припущення

direct debit – списання у безакцептному порядку; дебатування рахунку покупця постачальниками

to overdraw (overdrawn; overdrawn) – зняти з рахунку суму, що перевищує залишок на рахунку

Questions:

1. What are the general reasons for using a bank account?

2. What are the peculiarities of a deposit account?

3. What does a current account offer?

4. What does the rate of interest depend on?

5. How are the payments usually made? What are the alternative ways of payments?

6. What is an overdraft? When is it permitted?

Financial accounting

Financial accounting differs from managerial accounting because the information and analyses are for people outside the organization. This information goes to owners and prospective owners, creditors and lenders, employee unions, customers, suppliers, governmental units, and the general public. These external users are interested in the organization’s profits, its ability to pay its bills, and other financial information. Much of the information is contained in the annual report, a yearly statement of the financial condition and progress of the organization. Various quarterly reports keep the users more current. Financial accounting reports answer such questions as the following:

• Has the company’s income been satisfactory? Should we invest in this company?

• Should we loan money to this company? Will it be able to pay the money back?

• Can the company afford to raise its salaries? Is it financially strong enough to provide permanent employment?

• Is the company financially strong enough to stay in business to honor product warranties?

We hope you are getting the idea that accounting is critical to business and to anyone who wants to understand business. If so, you may want to know more about accounting firms, who the people are, who prepares these reports, and how you can be sure that they know what they are doing. You may even become interested in an accounting career. Traditionally, such careers have been paid well and usually only good students apply for such vacancies.

Vocabulary:

lender – кредитор

general public – широкий загал

annual report – щорічний звіт

quarterly report – квартальний звіт

satisfactory – задовільний

permanent employment – постійна зайнятість

warrantу – (технічна) гарантія

Questions:

1. How does financial accounting differ from managerial accounting?

2. What are the external users interested in?

3. What questions do financial accounting reports answer?

4. What is the general idea of accounting? Is it critical to business?

Functions of money

Whether money in shells or rocks or gold or paper, in any economy it has three primary functions, it is a medium of exchange, a unit of account, and a store of value. Of the three functions, its function as a medium of exchange is what distinguishes money from other assets such as stocks, bonds, or houses.

Medium of Exchange. In almost all market transactions in our economy, money in the form of currency or checks is a medium of exchange; that is, it is used to pay for goods and services. The use of money as a medium of exchange promotes economic efficiency by eliminating much of the time spent in exchanging goods and services. To see why, let's look at a barter economy, one without money in which goods or services are exchanged directly for other goods or services. Take the case of Ellen, the Economics professor, who can do just one thing well: give brilliant economic lectures. In a barter economy, if Ellen wants to eat, she must find a farmer who not only produces the food she likes, but also wants to learn economics. As you might expect, this search will be difficult and time consuming, and Ellen may spend more time looking for such an economics-hungry farmer than she will teaching. It is even possible that she will have to quit lecturing and go into farming herself. Even so, she may still starve to death.

The time spent trying to exchange goods and services is called transactions cost. In a barter economy, transactions costs are high because people have to satisfy a double coincidence of wants: that is, they have to find someone who has a good or service they want and who also wants the good or service they have to offer.

We see money promotes economic efficiency by eliminating much of the time spent exchanging goods and services. It also promotes efficiency by allowing people to specialize in what they do best. We see, therefore, that money is an essential item in an economy. It acts as a lubricant that allows the economy to run more smoothly by lowering transactions costs, thereby encouraging specialization and the division of labor.

The need for money is so strong that almost every society except the most primitive invents it. For a commodity to function as effectively as money it has to meet several criteria: (1) it must be easily standardized, making it simple to ascertain its value; (2) it must be widely accepted; (3) it must be divisible so that is easy to "make change"; (4) it must be easy to carry, and (5) it must not deteriorate quickly. Forms of money that have satisfied these criteria have taken many unusual forms throughout human history.