586

John Graves, Capital

Date		Explanation	Debit	Credit	Balance
200_
Oct..	1
	5
Delivery Service Income
Date		Explanation	Debit	Credit	Balance
200_
Oct..	3
	19
Warehouse Supplies
Date		Explanation	Debit	Credit	Balance
200_
Oct..	5
Rent Expense
Date		Explanation	Debit	Credit	Balance
200_
Oct..	8
Repairs & Gasoline Expense
Date		Explanation	Debit	Credit	Balance
200_
Oct..	15
Utilities Expense
Date		Explanation	Debit	Credit	Balance
200_
Oct..	8
Salaries Expense
Date		Explanation	Debit	Credit	Balance
200_
Oct..	30

(d) after recording the business transactions in the various ledger accounts, prepare a listing of the accounts and their various balances. If the total debit balances equal the total credit balances, this should indicate that the transactions were recorded correctly in the various ledger accounts:

ACCOUNT LISTING

BALANCES

DEBIT CREDIT

Cash

Delivery Equipment

John Graves, Capital

Delivery Service Income

Warehouse Supplies

Rent Expense

Repairs & Gasoline Expense

Utilities Expense

Salaries Expense

2.Read the following text and:

(a)be ready to characterize principle qualitative characteristics of financial information;

(b)complete the chart with the English equivalents;

Accounting as a Service Function

One way of viewing accounting is as a form of service. Accountants provide economic information to their 'clients', who are the various users. The quality of the service provided would be determined by the extent to which the information needs of the various user groups have been met. To be useful, accounting information should possess certain key qualities, or characteristics. These are:

Relevance. Accounting information must have the ability to influence decisions. Unless this characteristic is present, there is really no point in producing the information. The information may be relevant to the prediction of future events (for example, in predicting how much profit is likely to be earned next year) or relevant in helping confirm past events (for example, in establishing how much profit was earned last year). The role of accounting in confirming past events is important because users often wish to check on the accuracy of earlier predictions that they have made.

Reliability. Accounting should be free from significant error or bias. It should be capable of being relied upon by users to represent what it is supposed to represent. Though both relevance and reliability are very important, the problem that we often face in accounting is that information that is highly relevant may not be very reliable, and that which is reliable may not be very relevant.

Where a choice has to be made between providing information that has either more relevance or more reliability, the maximisation of relevance tends to be the guiding rule.

Comparability. This quality will enable users to identify changes in the business overtime (for example, the trend in sales over the past five years). It will also help users evaluate the performance of the business in relation to other similar businesses. Comparability is achieved by treating items that are basically the same in the same manner for accounting purposes. Comparability tends also to be enhanced by making clear the policies that have been adopted in measuring and presenting the information.

Understandability. Accounting reports should be expressed as clearly as possible and should be understood by those at whom the information is aimed.

The qualities, or characteristics, that have just been described will help us to decide if a particular piece of financial information is potentially useful. However, in order to make a final decision, we also have to consider whether the information is material, or significant. This means that we should ask whether its omission or misrepresentation in the financial reports would really alter the decisions that users make.

Thus, in addition to possessing the characteristics mentioned above, financial information must also achieve a threshold of materiality. If the information is not regarded as material, it should not be included within the reports as it will merely clutter them up and, perhaps, interfere with the users' ability to interpret the financial results. The type of information and amounts involved will normally determine whether it is material.

A piece of financial information may still be excluded from the financial reports even when it is considered to be useful. In theory, financial information should only be produced if the costs of providing a particular item of information are less than the benefits, or value, to be derived from its use.

________________

(Сопоставимость)

		Characteristics
________________				________________
		that make
(Релевантность)				(Надежность)
		financial information
		useful

Materiality		Cost / Benefit
Necessary for including	________________	Limitation to the
information in the	(Понятность)	application of the
financial statements		qualitative
		characteristics

(c)consider the situations below. Do you agree with the suggested answers? Present the answers in English and express your opinion.

•A manager has to sell a custom-built machine owned by the business and has recently received a bid for it. What information would be relevant to the manager when deciding whether to accept the bid? How reliable would that information be?

По всей вероятности, управляющий, прежде всего, попытается узнать текущую рыночную стоимость (current market value) станка. Эти данные будут релевантными для принятия окончательного решения, но они могут быть не совсем надежными, поскольку станок уникален и, скорее всего, управляющий не сможет собрать достаточно информации, чтобы точно оценить его рыночную стоимость.

•Do you think that accounting reports should be understandable to those who have not studied accounting?

Конечно, было бы очень хорошо, если бы любой пользователь финансовой информации, даже не знакомый с бухгалтерским учетом, мог понять финансовую отчетность. Однако в реальной жизни финансовые события и сделки так сложны, что отчетность о них не может быть простой. Финансовую отчетность можно уподобить произведениям современного искусства, — чтобы их понять, нужно иметь определенную подготовку. Вообще говоря, финансовая отчетность предполагает, что пользователь не только обладает достаточными знаниями в области экономики

ибухгалтерского учета, но и готов потратить определенное время на изучение отчетности.

•Suppose an item of information is capable of being provided. It is relevant to a particular decision, it is also reliable, comparable, understandable and material. Can you think of a reason why, in practice, you might choose not to produce the information?

Такой причиной может быть то, что затраты (costs) на подготовку этой информации превысят потенциальные выгоды (benefits) от ее использования. Поэтому всегда нужно сравнивать затраты на подготовку информации с ожидаемыми выгодами от этой работы.

2. Read the text and be ready to speak on generally accepted accounting principles that accountants must follow in order to present «a true and fair view» of a company's finances.

When writing accounts and financial statements, accountants have to follow a number of assumptions, principles and conventions. An assumption is something that is generally accepted as being true. The following are the main assumptions used by accountants:

The separate entity or business entity assumption is that a business is an accounting unit separate from its owners, creditors and managers, and their assets. These people can all change, but the business continues as before.

The time-period assumption states that the economic life of the business can be divided into (artificial) time periods such as the financial year, or a quarter of it.

The continuity or going concern assumption says that a business will continue into the future, so the current market value of its assets is not important.

The unit-of-measure assumption is that all financial transactions are in a single monetary unit or currency. Companies with subsidiaries — that is, other companies that they own — in different countries have to convert their results into one currency in consolidated financial statements for the whole group of companies.

The following are the most important accounting principles:

The full-disclosure principle states that financial reporting must include all significant information: anything that makes a difference to the users of financial statements.

The principle of materiality, however, says that very small and unimportant amounts do not need to be shown.

The principle of conservatism is that where different accounting methods are possible, you choose the one that is least likely to overstate or over-estimate assets or income.

The objectivity principle says that accounts should be based on facts and not on personal opinions or feelings. Accounts, therefore, should be verifiable: it should be possible for internal and external auditors to show that they are true. This isn't always possible, however: depreciation or amortization, and provisions for bad debts, for example, are necessarily subjective — based on opinions.

The revenue recognition principle is that revenue is recognized in the accounting period in which it is earned. This means the revenue is recorded when a service is provided or goods delivered, not when they are paid for.

The matching principle, which is related to revenue recognition, states that each cost or expense related to revenue earned must be recorded in the same accounting period as the revenue it helped to earn.

The consistency principle states that although businesses can choose among different accounting policies, they have to be consistent, which means using he same methods every year, unless there is a good reason to change a policy.

The historical cost principle is that companies record the original purchase price of assets, and not their current selling price.

(a)Match the two parts of the sentences and translate them.

1)Companies’ managers, investors, creditors and the tax authorities all

2)There are different ways of doing accounting but companies have to be consistent,

3)Companies have to disclose or make known

4)The historical cost principle is that the price paid to buy assets,

5)A going concern usually doesn’t

a)not their current value, is recorded in accounts.

b)need to know the current market value of its assets.

c)need to know about the size of profits or losses.

d)which accounting methods they are using.

e)which means regularly using the same methods.

(b)Match the accounting assumptions and principles to the activities they prevent.

1)conservatism principle (prudence principle);

2)matching principle;

3)separate entity assumption;

4)revenue recognition principle;

5)time-period assumption;

6)unit-of-measure assumption;

7)objectivity principle;

8)consistency principle;

9)full-disclosure principle.

a)recording all data that are verifiable and free from bias;

b)publishing financial statements for a 15-month period, because this will show better profits;

c)waiting until customers pay before recording revenue;

d)waiting until customers pay before recording expenses;

e)listing the owners' personal assets in a company's financial statements;

f)valuing assets and estimating future revenue at the highest possible figures;

g)showing a profit divided into US dollars, euros, Swiss francs, etc.;

h)including all significant information in financial reporting;

i)using the same methods (of inventory valuation, depreciation, etc.) from one period to the next.

3. Read the text and:

(a) number the paragraphs according to their chronological order;

A ___ In 1939, archaeological excavation at Pylos, Greece (the possible site of the palace of Nestor of Trojan War fame) recovered hundreds of clay tablets written in Minoan script. Scholars have concluded that a Cretan scribe had been carried off by Mycenaean raiders and set to work keeping the accounting records of the Grecian king (1400 BC). With the growth of governmental revenues, particularly in Athens, accounting and auditing became more important. In the golden age of Pericles (461–429 BC), each citizen became an auditor through the custom of requiring contractors of public buildings to report their receipts and expenditures on tablets chiselled in stone on the walls of the building. One such tablet indicates that the Parthenon cost 469 talents of silver.

B ____ Since the early 1900s, the rapidity of change and the increasing complexity of the world's industrial economies necessitated still more changes in accounting. Mergers, acquisitions, and the growth of multinational corporations fostered new internal and external reporting and control systems. With widespread ownership of modem corporations new audit and reporting procedures came and new agencies became involved in promulgating accounting standards.

C ____ In the Middle Ages accounting suffered a decline because of the general disorganised condition of government and the economy throughout Europe. Gradually, however, accounting was reestablished.

D ___ Roman civilisation was forward-thinking enough to have laws requiring taxpayers to prepare statements of their financial position. In fact, the Roman Empire made effective use of accounting and auditing to control the generals of conquered territories. The quaestors, who came into being about 200 BC, were financial officers responsible to Rome, who had custody of the treasury, supervised the scribes in

their duties of recording treasury receipts and disbursements, and examined the accounts of the governors of subjugated countries. The quaestors were required to report periodically to Rome.

E ___ Double-entry bookkeeping (a system which records two aspects of every transaction) progressed in Italy around the thirteenth and fourteenth centuries as a result of the growth of maritime trade and banking institutions. Merchants required details of voyages to be kept, in order to calculate and share profits from overseas trading. The first bank with customer facilities opened in Venice in 1149.

F 1 The precise origins of accountancy are difficult to trace. However, there is certainly evidence of some sort of record-keeping in many civilisations such as the Babylonian, Assyrian and Egyptian. The Sumerian, an early Mesopotamian civilisation, recorded commercial transactions on stone dating back to 3600 BC and on clay tablets beginning about 3200 BC.

G ___ Luca Pacioli, a Franciscan monk, is widely believed to be the inventor of double-entry bookkeeping. However, a rudimentary system of double-entry bookkeeping was used in Genoa around 1340. In 1494, Pacioli documented the double-entry system being practised at the time by merchants in Venice in his famous book «Summa de arithmetica, geometria, proportioni et proportionalit» (The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality). The Summa made Pacioli «The Father of Accounting».

H ___ Balance sheets were evident from around 1400 and the Medici family had accounting records of 'cloth manufactured and sold'. Regular audits of the records of the Medici Bank were performed during the period 1397 to 1494. The main office in Florence required that an annual balance sheet be submitted by each branch. The general manager and his assistants audited these statements which are still found in the archives of Florence.

I ___ Development of accounting theory began in that period and has continued to the present day. The influence of Pacioli's Summa continues to be felt in the double-entry bookkeeping we use today.

J ___ In ancient Egypt, accountants were scribes who also practised law. In the Pharaoh's central finance department, scribes prepared records of receipts and disbursements of silver, corn and other commodities. One recorded on papyrus the amount brought to the warehouse and another checked the emptying of the containers on the roof as the contents were poured into the storage building. Audit was performed by a third scribe who compared these two records.

Words you may need:

scribe (n) — писец, переписчик (документов, рукописей) warehouse (n) — склад

storage (n) — хранение, хранилище inventory (n) — запасы

contractor (n) — подрядчик

quaestor (n) — квестор (помощник консула в финансовых и судебных делах в Древнем Риме) treasury (n) — казна, казначейство

prerequisite (n) — предпосылка, предварительное условие emergence (n) — появление

maritime trade — морская торговля rudimentary (adj) — элементарный merchant (n) — купец, торговец merger (n) — поглощение acquisition (n) — приобретение

(b)single out the main stages in the history of accounting;

(c)make up the outline and give a presentation on the development of accountancy.

4.Make a free translation of the text below. Interpret the main ideas!

ОАО «РЖД» ведет и раскрывает финансовую отчетность в соответствии с российскими (РСБУ) и международными (МСФО) стандартами.

Следуя принципу прозрачности, Компания также раскрывает дополнительную информацию о своей деятельности, которая может представлять интерес или быть существенной для акционера, инвесторов и иных заинтересованных лиц, за исключением информации, составляющей государственную или коммерческую тайну. Компания имеет самостоятельный баланс, а также составляет сводную (консолидированную) отчетность, включая балансы, по филиалам и представительствам Компании.

Баланс, отчеты о прибылях и об убытках Компании составляются в рублях.

Баланс, отчеты о прибылях и об убытках, а также иные финансовые и статистические отчетные документы составляются в соответствии с законодательством Российской Федерации.

Первый финансовый год ОАО «РЖД» начинается с даты его государственной регистрации и завершается 31 декабря года государственной регистрации Компании. Последующие финансовые годы совпадают с календарными годами.

Компания осуществляет учет результатов своей деятельности, ведет оперативный, бухгалтерский, налоговый и статистический учет в соответствии с законодательством Российской Федерации.

Ответственность за организацию, состояние и достоверность бухгалтерского учета в компании, своевременное представление ежегодного отчета и другой финансовой отчетности в соответствующие органы, а также сведений о деятельности компании, представляемых акционеру, кредиторам и в средства массовой информации, несет президент ОАО «РЖД» в соответствии с Федеральным законом «Об акционерных обществах» и иными нормативными правовыми актами Российской Федерации.

ASSIGNMENT

1.What type of work does each person do? What is the name of each job?

«I record all the purchases and sales made by this department.»

«This month, I'm examining the accounts of a large manufacturing company.»

«I analyse the sales figures from the different departments and make decisions about our future activities.»

«I am responsible for preparing our annual balance sheet.»

«When the accounts are complete, I check them before they are presented to the external audi-

tors.»

2. Choose the best answer for the items below.

1) A company has liabilities of $19,000 and owner’s equity of $57,000. The assets of the company are

(a)	$38,000	(c)	$76,000
(b)	$57,000	(d)	$19,000

2)The payment of a liability will

(a)increase both assets and liabilities;

(b)increase assets and decrease liabilities;

(c)decrease assets and increase liabilities;

(d)decrease both assets and liabilities.

3)The purchase of an asset for cash will

(a)increase and decrease assets at the same time;

(b)increase both assets and liabilities;

(c)increase assets and owner’s equity;

(d)increase assets and decrease liabilities.

4)At the beginning of the year Gilbert Company’s assets were $180,000 and its owner’s equity was $100,000. During the year assets increased $60,000 and liabilities decreased $10,000. What was the owner’s equity at the end of the year? Use the accounting equation to answer the question.

DISCUSSION

Discuss the following questions and present your ideas.

1.«Debits are bad; credits are good». Comment on this statement.

2.Why is the system of recording entries called the double-entry system? What is special about it?

3.Give the rules of debits and credits for a) assets, b) liabilities, and c) owner’s equity.

4.Outline the relative benefits to users of financial reports relating to:

(a)information about the past;

(b)information about the present;

(c)information about the future.

UNIT 3. FINANCIAL STATEMENTS

PRE-READING

Discuss these questions.

1.Do financial statements always give a true picture of a company? For whom are financial statements important?

2.Is the purpose of financial statements to make companies appear as well-run as possible?

READING

Scan the text and find the answers to the following questions:

What are the major financial statements?

How do the financial statements differ?

The objective of the major financial accounting statements is to provide a picture of the overall financial position and performance of the business. To achieve this objective, the business’s accounting system will normally produce three particular statements on a regular basis. These three are concerned with answering the following questions:

–What cash movements (that is, cash in and out) took place over a particular period?

–How much wealth (that is profit) was generated, or lost, by the business over that period?

–What is the accumulated wealth of the business at the end of that period?

The financial statements are:

the Balance Sheet (see Appendix 3);

the Income Statement also known as the Profit and Loss Account (see Appendix 4);

the Cash Flow Statement (see Appendix 5).

Taken together, they provide an overall picture of the financial health of the business. At least once a year, all companies prepare financial statements. This is commonly done at the end of the calendar year, but some firms use a fiscal year, which may be any twelve consecutive months.

* * * * *

The balance sheet is a statement of a firm’s financial position at a specified point in time and includes all the elements of the accounting equation. The balance sheet reveals the forms in which the wealth of the business is held and how much wealth is held in each form. The balance sheet sets out the assets of the business on the one hand, and the claims against the business on the other.

An asset is essentially a resource held by the business. Assets that have a physical substance and can be touched are referred to as tangible assets. Assets that have no physical substance but, nevertheless, provide expected future benefits (such as patents, trademarks and goodwill) are referred to as intangible assets.

A claim is an obligation on the part of the business to provide cash, or some other form of benefit, to an outside party. A claim will normally arise as a result of the outside party providing funds in the form of assets for use by the business. There are two types of claim against a business: capital (the claim of the owner (s) against the business that is usually referred as the owner’s equity) and liabilities (the claims of other individuals and organizations, apart from the owner (s)). Liabilities must have arisen from past transactions or events such as supplying goods or lending money to the business.

Assets on a balance sheet are usually divided into non-current and current assets.

Current assets are basically assets that are held for a short term. The most common current assets are inventories (or stock) customers who owe money for goods or services supplied on credit (known as trade receivables or debtors), and cash.

Non-current assets (also called fixed assets) are held for the long-term operations of the business.

Essentially, they are the «tools» of the business and are held with the objective of generating wealth. They are sometimes called property and consist of permanent investment in building, equipment, furniture and fixtures, transportation equipment, land, and any other tangible property used in running a business. They have a useful life of more than a year and are not expected to be converted into cash. With the exception of land, fixed assets depreciate yearly.

Liabilities may be also either current or non-current. Current liabilities are debts that will have to be paid within a year of the date of the balance sheet. Debts falling due a year or more after the date of the balance sheet are long-term liabilities, such as leases and mortgages.

Balance Sheet is a financial statement that shows the financial position of a business at a particular moment in time — a detailed presentation of all assets, liabilities, and owner’s equity. Actually, it is a detailed accounting equation, in which the total value of assets is equal to the total liabilities plus proprietor’s capital.

* * * * *

Businesses exist for the primary purpose of generating wealth, or profit, and it is the profit generated during a period that is the main concern of many users of financial information. The income statement (or profit and loss account) shows how much profit (wealth) the business has generated over a given period of time. When expenses (the outflow of economic benefits arising from the ordinary activities of a business) are subtracted from revenue (the inflow of economic benefits arising from the ordinary activities of a business), the resulting profit or loss of a company is known as net income — the «bottom line».

The difference between the total revenue and total expenses will represent either profit (if revenue exceeds expenses) or loss (if expenses exceed revenue)

Revenue may be recorded on either an accrual basis (recorded as soon as the sale is made) or cash basis (recorded only when money from a sale is actually received). Companies generally prefer recording revenue on a cash basis to avoid being taxed on money not as yet collected.

Income Statement is a financial statement that presents revenue and expenses and the net income or loss for a specific period of time.

* * * * *

Cash is a vital resource that is necessary for any business to function effectively. Cash is required to meet debts that may become due and to acquire other resources (such as stock). If a business wants to employ people, it must pay them in cash. If it wants to buy new equipment, the seller of the asset will normally insist on being paid in cash, probably after a short period on credit. When businesses fail, it is their inability to find the cash to pay creditors that really drives them down. Cash can be described as the «lifeblood» of a business, and movements in cash are usually given close scrutiny by users of financial statements.

Most businesses prepare a statement of cash flows in addition to the income statement and the balance sheet. This statement summarizes the company’s receipts and disbursements for the areas of operations, investments, and financing over a particular period. It also serves to indicate a firm’s liquidity (i.e. its ability to pay short-term obligations).

Tracking the sources and uses of cash over several years could show financing trends and help to make predictions about the likely future behaviour of the company. A successful business is one which actively manages the cash flow.

Statement of Cash Flows is a financial statement that presents a detailed explanation of the balance of the cash account as reported in the balance sheet of an organization. This statement presents cash receipts and disbursements from operating activities, investing activities and financing activities.

WORDS AND EXPRESSIONS FOR READING COMPREHENSION

1.objective (n)

2.wealth (n)

3.at least

4.fiscal year

5.consecutive (adj)

6.to reveal (v)

7.claim (n)

8.essentially (adv)

9.substance (n)

10.to refer

11.nevertheless

12.tangible assets

13.intangible assets

14.goodwill (n)

15.non-current assets

16.current assets

цель

благосостояние по крайней мере финансовый год последовательный

показывать, обнаруживать

требование, право на активы существенно, главным образом вещество, материя, реально существую-

щее указывать, ссылаться тем не менее

материальные / осязаемые активы нематериальные / неосязаемые активы

цена фирмы, гудвилл

внеоборотные активы