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Your vocabulary - Л. В. Бедрицкая английский для экономистов


^ Your vocabulary

Account

- a detailed record of all the money that a person receives and spends.

Accountant

- a person whose job is to inspect or keep accounts.

Accounting

- the system that measures business activities, processes that information into reports, and communicates these findings to decision makers.

Accountancy

- the theory and practice of keeping and inspecting accounts.

^ Audit

- the inspection of an organization’s annual accounts.

Auditor

- a person who carries out an audit.


Ex. 1. Translate the following sentences into Russian. Pay special attention to the words in bold. They are your professional vocabulary.


1. The money that a business spends in order to produce goods or services is its costs.

2. Fixed costs do not vary in relation to the output level of goods or services; variable costs do.

3. Direct costs are directly related to the things produced. In manufacturing, for example, direct costs include raw materials and wages and indirect costs may include things like social security charges on top of the wages.

4. Overhead costs or overheads are used to mean different things, but usually cover all the regular non-production costs of running a business, such as salaries and telephone bills, and can be extended, for example, to include the cost of marketing and R&D activities.

5. A company's financial performance for a period is its results, which it reports in the form of a profit and loss account, indicating whether it has made a profit or a loss.

6. The equivalent document in the US is the income statement. A pre-tax profit or loss is one calculated before tax is taken into account.

7. The accuracy of accounts such as the balance sheet and the profit and loss account is checked and supposedly guaranteed by auditors, outside accountants who specialize in this.

8. When a company's accounts are presented in a way that makes performance look better than it really is, the company may be accused of window dressing or creative accounting.

9.The bottom line is an informal way of talking about the results of a company: the so-called bottom line of the profit and loss account. The bottom line also means the final result or the most important aspect of something.

10.Assets and liabilities are normally shown on a firm's balance sheet: a "photograph" taken, normally once a year, of its financial situation at that time. Firms in a good situation are said to have a strong balance sheet and those that are not, a weak one.

11.Things that are not shown in the balance sheet but in a footnote, for example, are off-balance sheet.

12.A company's balance sheet may include provisions for potential losses, such as bad debts, debts that may never be paid.

13.If it looks almost certain that a debt will not be paid, it is considered a write-off and written off.

14.A company supplying goods or services to another company does not, of course, usually expect to be paid immediately, but after an agreed period. This is trade credit.

15.Amounts that a business is waiting to be paid by its customers are accounts receivable or receivables. Customers owing money in this way are debtors.

16.Money that a business owes to its suppliers are accounts payable or payables. Suppliers waiting to be paid are creditors.

17.The cash flow of a business is the actual movement of money into and out of it, independently of how much it owes and is owed.

18.Cash flow is also used to refer exclusively to cash flowing into a company from sales.

19.When sales reach a level where revenues match costs, a company or product breaks even. 20.This is break even or the break even point, a crucial figure when calculating the return on investment (ROI) for a given business or product.


Ex.2. Match each word in column A with its definition in column B.


A B

1. on account a. unimportant

2. account for b. on one’s behalf

3. by all accounts c serve as or provide an explanation for

4. call to account d. because of

5. of no account e. require an explanation from

6. of some account f. important

7. on one’s account g. in everyone’s opinion

8.on account of h. consider

9.on no account i. under no circumstances

10.take into account. j. use smth fully and profitably

11.put (take) smth to good account k.to be paid for later


Use the words from column A to fill in the blanks

  1. She told me not to run … … … my illness.

  2. … … … she was a very clever young lady.

  3. You can have it … … .

  4. If you buy something … …, you take it away with you and pay for it at a later date.

  5. How do you … … losing such a large sum of money?

  6. In this new job she can … her talents … … … .

  7. Their reactions were … … … to me.

  8. … … … must strangers be let in.

  9. We’ll certainly … your feelings .. … .

  10. I was … … … for my conduct by the headmaster.


Ex. 3. Write down a synonym for each of the words on the left. Choose from the ones on the right.

1. responsible a. buy

2. public b. influence

3. earnings c. costs

4. purchase d. information

5. impact e. provide with

6. acquire f. employ

7. expenses g. in charge of

8. supply h. obtain

9. hire i. state-owned

10. evidence j. income

Using these words ask your partner as many questions as you can.


Ex. 4. Join the halves.

  1. Before making a loan, potential lenders…

  2. Both profit and non-profit organizations…

  3. Public accountants are those who…

  4. Several accounting organizations have formulated…

  5. To do an audit, there must be information in a …

  6. It is important to obtain a sufficient…

  7. The final stage in the audit process is…

  8. Very often the general public…

  9. The function of accounting is to provide certain types of…

  10. Auditing is the process of recording, classifying and summarizing economic…




    1. serve the general public and collect professional fees for their work

    2. quality and volume of evidence to satisfy the audit objectives

    3. the audit report

    4. quantitative information that management can use to make decisions

    5. verifiable form and some standards by which the auditor can evaluate the information

    6. determine the borrower’s ability to meet scheduled payment.

    7. confuses auditing with accounting.

    8. codes of ethics that govern the behaviour of their members.

    9. events in logical manner for the purpose of providing financial information for decision-making.

    10. deal with budgets, payrolls, rent payments, and the like.


Ex.5. Before you begin this exercise, be sure that you know the meaning of the words and word-combinations given below. From the list, choose a word or word combination that fits both grammatically and contextually in each blank. Use each word only once and add noun or verb endings if necessary.


direct costs, fixed costs, income statement, costs, indirect costs, assets and liabilities, earnings, balance sheet, timely information, revenue, entry, depreciation.


  1. Substance should triumph are form in situations of window-dressing and off-… financing.

  2. It is argued that …should be brought together on the balance sheet if this is necessary to give a true and fair view, whether or not the information involved is specifically required be legislation.

  3. Firms locate their production and other operations internationally for reasons that are more complex then the simple minimization of … .

  4. Mainly because of higher …, a German manufacturing worker costs almost twice as much per hour as a British one.

  5. The … shows the amount that the company earned during the year.

  6. After deducting the costs of goods sold and other expenses, the firm had total … before interest and taxes of S 10mln.

  7. Lufhansa’s cost problem is illustrated in a comparison with British Airways, when personnel …amount to about 24 per cent of revenues against Lufhansa’s 33 per cent.

  8. Any gain in market share fattens profit, because … are high and variable costs are low.

  9. There remains, of course, the risk of capital …

  10. The purpose of adjusting … is to bring the accounts to their proper balances before the financial statements are prepared.

  11. This matching of expenses and … is necessary for the income statement to present an accurate picture of the profitability of a business.

  12. Since those interested in the activities of a business need … , financial statements must be prepared periodically.


Ex. 6. Complete the table.

Noun

Adjective

Verb

Meaning


account

profit


finance

system

dependence

quality


explanation


--

payable

comparable

liable

total

trace

transfer


manage

accept

require

recognize


estimate

observe

enter





Ex. 7. Study the difference between the following synonyms. Only one meaning of the word is given here. Consult a good dictionary to find the meanings and some more synonyms to the given words. Then use them in the sentences that follow.


Evaluate. If you evaluate something you decide on its significance, value, or quality after carefully studying its good and bad features.


Estimate. If you estimate an amount or quality you calculate it approximately, you make judgment about it based on the available evidence.


Appreciate. If you appreciate something, for example a piece of music or good food, you recognize and understand the good qualities or features that it has and like or admire it because of them.


  1. They meet monthly to discuss policy and … the current political situation.

  2. They really … the peace and quiet of rural Wales.

  3. The hurricane caused damage … at 300 mln pounds.

  4. How would you … our chances.

  5. He is the kind of individual that’s very hard to … .

  6. The lawyers … the property at 90 thousand pounds.

  7. The builder … the cost of repairing of roof at 600 pounds.

  8. It can explain why actual costs varied from cost … .

  9. I would … the size of the garden at 1000 square metres.


Ex. 8. What can we do with information? We can record it, store, buy, classify… Add as many verbs to this line as you can. Explain the action each verb names and the purpose of this action.

e.g. When we classify the information, we subdivide it into groups according to some criteria to use it purposely in different situations.


^ LET’S READ AND TALK


T E X T 1


What do you know about accounting? How old is it? What century does it date back? When you hear the word ‘accountant’, what kind of work do you draw in your mind?


HISTORY OF ACCOUNTING


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.

Accounting has a long history. Some scholars claim that writing arose in order to record accounting information. Account records date back to the ancient civilisations of China, Babylonia, Greece, and Egypt. The rulers of these civilisations used accounting to keep track of the cost of labour and materials used in building structures like the great pyramids.

Accounting developed further as a result of the information needs of mer­chants in the city-states of Italy during the 1400s. In that commercial climate the monk Luca Pacioli, a mathematician and friend of Leonardo da Vinci, published the first known description of double-entry bookkeeping in 1494.

The double-entry accounting system -- in which for every ‘debet dare’ there is a ‘debet habere’ – has evolved to the point where it is very much like the present day system. Debet dare and debet habere are Latin terms meaning ‘should give’ and ‘should have’ respectively.

The pace of accounting development increased during the Industrial Revolu­tion as the economies of developed countries began to mass-produce goods. Until that time, merchandise had been priced based on managers' hunches about cost, but increased competition required merchants to adopt more sophisticated ac­counting systems.

In the nineteenth century, the growth of corporations, especially those in the railroad and steel industries, spurred the development of accounting. Corpora­tion owners—the stockholders—were no longer necessarily the managers of their business. Managers had to create accounting systems to report to the owners how well their businesses were doing.

The role of government has led to still more accounting developments. When the federal government started the income tax, accounting supplied the concept of "income." Also, government at all levels has assumed expanded roles in health, education, labour, and economic planning. To ensure that the information that it uses to make decisions is reliable, the government has required strict accountability and compliance with standards in the business community.

Accounting standards may be defined as «... uniform rules for external financial reporting applicable either to all or to a certain class of entity». Accounting standards may be viewed as a method of resolving potential conflicts of interests between the various user groups which have access to company accounts. The various groups have different objectives, information needs, and capacities for the generation and interpretation of information and, therefore conflicts may arise between groups outside the entity. It is a role of accounting standards to attempt to reconcile the conflicts. A number of important issues for the accounting profession should be mentioned here. These issues are as follows:

- Reliability. Accounting information should be reliable in use.

- Uniformity. The pressure for the standardization of accounting practices is to ensure a uniformity of treatment of data and hence an identity of the meaning of information.

- Comparability. Reliability and uniformity are integrated in the notion of comparability.

- Judgment. Accountants say that they should be allowed to exercise some judgment in interpreting data. This implies that some variety should be allowed for in the procedures available for transforming data into information.

Accounting practice and financial reporting regulation have shown great variety internationally. In recent years there has been growing interest in the harmonization of international accounting. Factors which have stimulated the movement towards harmonization have included the increasing internationalization of business, the importance of multinational companies in the world economy, and the development of international capital markets. In 1973 the International Accounting Standards Committee (IASC) was established in an attempt to coordinate the development of accounting standards internationally.


T E X T 2

^ WHAT IS ACCOUNTING?


The study of accounting begins with the understanding of the way in which accountants see the business enterprise. Accountants frequently refer to a business organization as an accounting entity or a business entity. A business entity is any business organization such as a hardware store or grocery store that exists as an economic unit. As an economic unit, the business enterprise acquires, organizes and transforms factors of production in its activity of producing goods and services. This activity may be presented as the following.

the input factors are combined an output flow of

(land, buildings, equipment, ------ and transferred ------- goods and services

material, labour) into


The accounting interpretation is an abstraction of the reality portrayed above. The business enterprise is viewed as a system of monetary flow, instead of a system of physical flows. In accounting, business activities are associated with transactions and, indeed, are limited to transactions. Thus, unless there is a transaction there is no observable business activity.

A transaction occurs whenever the firm enters into a legal contract for the acquisition of means of production or the sale of goods and services. Business activities which do not lead to transactions remain unrecognized in accounting. Transactions involving the acquisition of factors of production lead either to an outflow of money immediately or an obligation to pay money at a later date. Transactions by which the firm sells goods or services lead to an inflow of money or the right to receive money at a future date. The accounting interpretation of business activities leads to further analysis of these transactions.

First, transactions between the firm and its markets – both its supply markets and its selling markets – are defined as «external transactions». The totality of «external transactions» forms the subject matter of financial accounting. General purpose of financial statements (reports) is to provide most of the information needed by external users of financial accounting. These financial statements are formal reports providing information on a business entity’s financial position (solvency), cash inflows and outflows, and the results of operations (profitability). Financial accounting information is historical in nature, reporting on what has happened in the past. Hence, the external users rely on relevant and reliable financial statements to make present decisions about future events.

Second, transactions within the firm, consisting of the exchanges which occur between the various departments are defined as «internal transactions». The totality of «internal transactions» forms the subject matter of cost or management or managerial accounting. Managerial accounting information provides special information for the managers of a business entity. The kind of information used by managers may range from very broad, long-range planning data to detailed explanation of why actual costs varied from costs estimates. The purpose of managerial accounting is the generate information that a manager can use to make sound internal decisions.

  1. What does the study of accounting begin?

  2. In what way may the activity of an organization be presented?

  3. What is business activity associated with in accounting?

  4. When does a transaction occur?

  5. What business activities are recognized in accounting?

  6. How can transactions be classified?

  7. What is financial accounting?

  8. What is managerial accounting?



T E X T 3

Read the following text. How many parts does it consist of ? Give the title to the text and to its parts. Define the key-sentence of each paragraph.

Accounting is shaped by the environment in which it operates. Just as nations have different histories, values, and political systems, they also have different patterns of financial accounting development. In a number of countries accounting information is directed primarily toward the needs of investors and creditors, and «decision usefulness» is the overriding criterion for judging its quality. Financial accounting in the US and Great Britain has had such an orientation for many years. Moreover, these countries have large and developed stock exchanges and bond markets. As a result, a great deal of information is disclosed in companies’ financial reports; and determining profitability is an objective of financial accounting. However, in other countries, financial accounting has a different focus and performs other roles. For example, in some countries, financial accounting is designed primarily to ensure that the proper amount of income tax is collected by the national government. This is the case in most South American countries. In other countries, financial accounting is designed to help accomplish macroeconomic policies, such as achieving a predetermined rate of growth in the nation’s economy. Whether income tax and economic policy information is also useful to individual investors and creditors is somewhat beside the point. In such countries as Switzerland, Germany, and Japan the environment is characterized by a few, very large banks that satisfy most of the capital needs of business. Ownership also tends to be concentrated. The information needs are satisfied in a relatively straightforward way – through personal contacts and direct visits. Not surprisingly, the financial reports tend not to contain as much information as US companies’ reports. And since banks are the primary source of capital, financial accounting is oriented toward creditor protection. France and Sweden offer still another orientation of financial accounting. National government plays a strong role in managing the country’s resources. Governments also actively ensure that businesses have adequate capital and will lend or even invest in companies if necessary. Financial accounting is oriented toward decision making by government planners.


T E X T 4


^ BUSINESS DOCUMENTS

The analysis of the transactions complete, what is the next step in the accounting process? How does an accountant present the results of the analysis? We now look at the financial statements. These business documents report financial informa­tion about the entity to persons and organizations outside the business.

The primary financial statements are the (1) balance sheet (2) income state­ment, (3) statement of owner's equity, and (4) statement of cash flow.

The balance sheet lists all the assets, liabilities, and owner's equity at a point in time, usually the end of a month or a year. The balance sheet is like a snapshot of the entity. For this reason, it is also called the statement of financial position. A balance sheet is made up of two lists, placed side by side. On the left the company lists everything it owns, such as cash and ‘fixed assets’ called property, plant, equipment, which include everything from buildings and trucks to tools, pencils, and copy machines. This list is labeled assets. On the other side, the company lists its liabilities, consisting of all the claims to the company’s assets, from creditors and from the company owners. The lists end up being exactly equal – whatever assets are not claimed by the company’s creditors belong to the owners.


^ MAIN STREET STORE, INC

Balance Sheet

August 31, 20XX

Assets Liabilities and Owners’ Equity




Current assets: Current liabilities:

Cash……………………..34,000 Short-term debt…………20,000

Accounts receivable………80,000 Accounts payable……….35,000

Merchandise inventory……170,000 Other accrued liabilities….12,000

Total current assets…….284,000 Total current

Plant and equipment: liabilities……………67,000

Equipment………………...40,000 Long-term debt……………..50,000

Less: Accumulated Total liabilities……….117,000

Depreciation…………(4000) Owners’ equity………………203,000

Total liabilities and

Total assets ……………….320,000 owners’ equity……………..320,000


The income statement, or profit and loss statement (P&L) measures the performance of an enterprise. It presents a summary of the revenues and expenses of an entity for a specific period of time, such as a month or a year. The income statement, also called the statement of operations, is like a moving picture of the entity's operations during the period. The income statement holds perhaps the most important single piece of information about a business—its net income, which is revenues minus expenses. If expenses exceed revenues, the result is a net loss for the period.

The statement of owner's equity presents a summary of the changes that occurred in the owner's equity of the entity during a specific time period, such as a month or a year. Increases in owner's equity arise from investments by the owner and net income earned during the period. Decreases result from withdrawals by the owner and from a net loss for the period. Net income or net loss comes directly from the income statement. Investments and withdrawals by the owner are capital transactions between the business and its owner, so they do not affect the income statement.

Another tool for understanding a company’s activity is to look at its cash flow. This measures the actual flow of funds – real money—flowing into and out of a company during a given period of time. A company’s cash flow factors out all of the accounting tricks and looks at what a company really earned, because it excludes accounting tools such as depreciation.

^ Main Street Store, Inc.

Statement of Cash Flows

For the Year Ended August 31, 20XX


Cash flows operating activities:

Net income…………………………………….18,000

Add(deduct) items not affecting cash:

Depreciation expense……………………….4,000

Increase in accounts receivable………………80,000

Increase in merchandise inventory……………(170,000)

Increase in current liabilities…………………..67,000

Net cash used by operating activities………..161,000

^ Cash flows investing activities:

Cash paid for equipment………………………..40,000

Cash flows from financing activities:

Cash received from issue of long-term debt……50,000

Cash received from sale of common stock……..190,000

Payment of cash dividend on common stock…….5,000

Net cash provided by financing activities……….235,000

Net increase in cash for the year…………………………34,000

Good record keeping by a business is not only wise but is required by law. Legal and financial questions may be raised by various agencies, banks, and employees. The questions may be accurately answered when written records of business proceedings are kept. By recording daily transactions, the owner can learn from mistakes and avoid errors in the future. Even if profits are not distributed to shareholders, any organization needs a P&L to account for its activities to see whether it is being efficiently and honestly run.


1.What are the main business statements?

2.What do they show?




T E X T 5


Read the following two texts and be ready to differentiate between financial and managerial accounting.


^ FINANCIAL ACCOUNTING

The classification of financial accounting transactions reflects the concern with two major interests in financial accounting. The first is addressed to the analysis of the profitability of the business. This is done normally on a yearly basis by comparing the sale and the purchase transactions and establishing the difference, with either a loss or a profit for the year. A profit will be shown when sale transactions are greater the purchase transactions during the year; a loss will be shown in the reverse case. In financial accounting, the operating cycle is conventionally treated as a period of one year. This suggests that the profit or loss is a short-term analysis of business activities.

The second major interest in financial accounting is directed to the analysis of those transactions having a long-term impact on the firm. These transactions include, on the one hand, investment transactions by which the firm acquires assets of potential use for more than one accounting period, and, on the other hand, financial transactions by which the firm obtains funds for use for more than one year.

Financial accounting brings together investment and financial transactions in a statement of the financial status, or structure, of the enterprise which is commonly known as the balance sheet.


T E X T 6


^ MANAGERIAL ACCOUNTING


Managerial accounting (MA) involves using economic and financial information to plan and control many of the activities of the entity, and to support the management decision-making process. Cost-accounting is a subset of managerial accounting that relates primarily to the determination and accumulation of product, process, or service costs.

Managerial accounting is concerned with providing information to managers – that is, to those who are inside an organization and who are charged with directing and controlling its operations. We can identify major differences between financial and managerial accounting:

1.MA focuses on providing data for internal uses by the manager.

2.MA places more emphasis on the future.

3.MA is not governed by generally accepted accounting principles.

4.MA emphasizes the segments of an organization, rather than just looking at the organization as a whole.

5.MA is not mandatory.

As with financial accounting, managerial accounting and cost accounting have special terminology or, as many would say, jargon. Most of the terms relate to different types pf costs. There are different costs for different purposes. Costs used for valuing inventory are different from the costs that should be considered when analyzing a product modification or potential new product. The cost classifications most frequently encountered are: product cost, period cost, direct cost, indirect cost, variable cost, fixed cost, controllable cost, noncontrollable cost, opportunity cost, etc.

Managerial accounting is in its infancy. Historically, it has played a secondary role to financial accounting, and in many organizations it still is little more than a by-product of the financial reporting process. However, the events of the last decades have shown the development of managerial accounting, and it is becoming widely recognized as a field of expertise separate from financial accounting.


T E X T 7


^ THE ACCOUNT

The raw data of accounting are the business transactions. A business may engage in thousands of transactions during a period of time. The data in these transactions must be classified and summarized before becom­ing useful information. Making the accountant's task somewhat easier is the fact that most business transactions are repetitive in nature and can be classified into groups having common characteristics.

An account is an element in an accounting system that is used to classify and summarize money measurements of business activities of a similar nature. An account is set up whenever it is necessary to provide useful information about a particular business item. The number of accounts in a company’s accounting system depends on the information needed by those interested in the business.

Accountants may differ on the account title (or name) they give for the same item. The account title should be logical to help the accountant group similar transactions into the same account. Once an account is given a title, that same title must be used throughout the accounting records.

Accounts may take on a variety of formats. Some accounts are printed, and entries are written in by hand; others are on magnetic tape, and "invisible" entries are encoded by a computer. Every account format must provide for increases and decreases in the item for which the account was established. Once a business event is recognized as a business transaction, it is analyzed to determine its increase or decrease effect on the assets, liabilities, owner’s equity, revenues, or expenses of the business. These increase or decrease effects are then translated into debits and credits. Then the account balance (the difference between the increases and decreases) can be determined.

In each business transaction is the activity that is recorded. The total dollar amount of debits must equal the total dollar amount of credits. The accounting requirement that each transaction must be recorded by an entry that has equal debits and credits is called the double-entry procedure, or duality. This double entry procedure keeps the accounting equation – Assets = Liabilities+ Owner’s equity -- in balance.

To understand how the increases and decreases in an account are recorded, accountants use the T-account, which derives its name from the fact that it looks like the letter T. The title (name) of the item accounted for, such as cash, is written across the top of the T. Increases are recorded on one side of the vertical line of the T, and decreases on the other side, depending on the type of account. A T-account appears as follows:

Title of account

Debit Credit


The accountant uses the term debit (or charge) instead of saying "place an entry on the left side of the T-account" and credit for "place an entry on the right side of the T-account". Thus, for any account, the left side is the debit side, and the right side is the credit side. A synonym for «debit an account» is «charge an account».

  1. What is an account?

  2. When is an account set up?

  3. What does the number of accounts depend on?

  4. What must every account format provide for?

  5. What is debit?

6. What is credit?


T E X T 8

^ TYPES OF ACCOUNT


This text gives you more information about different kinds of accounts. Read the text and be ready to speak about each of them. While reading make your own list of business terms.


Assets. Assets are rights to use resources that are expected to result in future economic benefit for the accounting entity.

Cash. The Cash account shows the cash effects of a business's transactions. Cash means money and any medium of exchange that a bank accepts at face value. Cash includes currency, coins, money orders, certificates of deposit, and checks. The Cash account includes these items whether they are kept on hand, in a safe, in a cash register, or in a bank.

Notes Receivable. A business may sell its goods or services in exchange for a promissory note, which is a written pledge that the customer will pay the business a fixed amount of money by a certain date. The Notes Receivable account is a record of the promissory notes that the business expects to collect in cash.

Accounts Receivable. A business may sell its goods or services in exchange for an oral or implied promise for future cash receipt. Such sales are made on credit (on account). The Accounts Receivable account includes these amounts.

Prepaid Expenses. A business often pays certain expenses in advance. Pre­paid Expenses are assets because they will be of future benefit to the business. The ledger holds a separate asset account for each prepaid item. Prepaid Rent and Prepaid Insurance are prepaid expenses that occur often in business. Office Sup­plies are also accounted for as prepaid expenses.

Land. The Land account is a record of the land that a business owns.

Building. A business' buildings — office, warehouse, garage, and the like — appear in the Building account.

Equipment, Furniture and Fixtures. A business has a separate asset account for each type of equipment—Office Equipment and Store Equipment, for exam­ple. The Furniture and Fixtures account shows the cost of this asset.

Liabilities. Recall that a liability is a debt. A business generally has fewer liability accounts than asset accounts because a business' liabilities can be summarized under relatively few categories.

Notes Payable. This account is the opposite of the Notes Receivable account. Notes Payable records the amounts that the business must pay because it signed a promissory note to purchase goods or services.

Accounts Payable. This account is the opposite of the Accounts Receivable account. The oral or implied promise to pay off debts arising from credit pur­chases of goods appears in the Accounts Payable account. Such a purchase is said to be made on account. Other liability categories and accounts are added as needed. Taxes Payable, Wages Payable, and Salary Payable are accounts that appear in many ledgers.

Some other accounts may be as follows:

Owner's Equity. The claim that the owner has on the assets of the business is called owner's equity. In a proprietorship or a partnership, owner's equity is often split into separate accounts for the owner's capital balance and the owner's withdrawals.

Capital. This account shows the owner's claim to the assets of the business. After total liabilities are subtracted from total assets/ the remainder is the owner's capital. The balance of the capital account equals the owner's investments in the business plus its net income and minus net losses and owner withdrawals. In addition to the capital account/ the following accounts also appear in the owner's equity section of the ledger.

Withdrawals. When the owner withdraws cash or other assets from the business for personal use, its assets and its owner's equity both decrease. The amounts taken out of the business appear in a separate account entitled With­drawals, or Drawing. If withdrawals were recorded directly in the capital account, the amount of owner withdrawals would be merged with owner investments. To separate these two amounts for decision making, businesses use a separate ac­count for Withdrawals. This account shows a decrease in owner's equity.

Revenues. The increase in owner's equity from delivering goods or services to customers or clients is called revenue. The ledger contains as many revenue accounts as needed. If the business loans money to an outsider, it will also need an Interest Revenue ac­count. If the business rents a building to a tenant, it will need a Rent Revenue account. Increases in revenue accounts are increases in owner's equity.

Expenses. The cost of operating a business is called expense. Expenses have the opposite effect of revenues, so they decrease owner's equity. A business needs a separate account for each category of its expenses, such as Salary Expense, Rent Expense, Advertising Expense, and Utilities Expense. Expense accounts are de­creases in owner's equity.

^ Let’s check your list of business terms. Can you find the terms with the following meaning in it?

Капитал, уставной капитал, остаток, чистый доход, снятие со счета, убытки, заем, стоимость, расходы, активы, пассивы, наличные, чек, номинальная стоимость, депозиты, ссуда, платежное поручение, счета дебиторов, векселя к получению, долговое обязательство, в кредит, предоплата, счета к оплате, бухгалтерская книга.


T E X T 9


Read the text and be ready to characterize each group of accounting information users.

^ USERS OF ACCOUNTING INFORMATION

Most of the material in this book describes business situations, but the principles of accounting apply to the financial considerations of individuals as well. The following sections discuss the range of people and groups who use accounting information.

Individuals. People use accounting information in day-to-day affairs to man­age their bank accounts, to evaluate job prospects, to make investments, and to decide whether to rent or to buy a house.

Businesses. Managers of businesses use accounting information to set goals for their organisations, to evaluate their progress toward those goals, and to take corrective action if necessary. Decisions based on accounting information may include which building and equipment to purchase, how much merchandise inventory to keep on hand, and how much cash to borrow.

Investors and Creditors. Investors provide the money that businesses need to begin operations. To decide whether to help start a new venture, potential inves­tors evaluate what income they can reasonably expect on their investment. This means analysing the financial statements of the new business. Those people who do invest monitor the progress of the business by analysing the company's finan­cial statements and by keeping up with its developments in the business press. Before making a loan, potential lenders determine the borrower's ability to meet scheduled payments. This evaluation includes a projection of future opera­tions, which is based on accounting information.

^ Government Regulatory Agencies. Most organisations face government reg­ulation. Government regulation agencies base their regulatory activity in part on the accounting information they receive from firms.

Taxing Authorities. Local, state, and federal governments levy taxes on indi­viduals and businesses. The amount of the tax is figured using accounting infor­mation. Businesses determine their sales tax based on their accounting records that show how much they have sold. Individuals and businesses compute their income tax based on how much money their records show they have earned.

^ Non-profit Organisations. Non-profit organisations — such as churches, most hospitals, government agencies, and colleges, which operate for purposes other than to earn a profit—use accounting information in much the same way that profit-oriented businesses do. Both profit and non-profit organisations deal with budgets, payrolls, rent payments, and the like—all from the accounting system.

^ Other users. Employees and labour unions may make wage demands based on the accounting information that shows their employer's reported income. Con­sumer groups and the general public are also interested in the amount of income that businesses earn.


T E X T 10

^ THE ACCOUNTING PROFESSION

Accounting is an old profession. Records of business transactions have been prepared for centuries. However, only during the last half-century accounting has been accepted as a profession with the same importance as the medical or legal profession. Positions in the field of accounting may be divided into several areas. Two general classifications are public accounting and private accounting. Public accountants are those who serve the general public and collect professional fees for their work, much as doctors and lawyers do. Their work includes auditing, income tax plan­ning and preparation, and management consulting. Public accountants are a small fraction (about 10 percent) of all accountants. Those public accountants who have met certain professional requirements are designated as Certified Public Accoun­tants (CPAs).

Private accountants work for a single business, such as a local department store, the McDonald's restaurant chain, or the Eastman Kodak Company. Chari­table organizations, educational institutions, and government agencies also em­ploy private accountants. The chief accounting officer usually has the title of controller, treasurer, or chief financial officer. Whatever the title, this person usually carries the status of vice-president.

Some public accountants pool their talents and work together within a single firm. Most public accounting firms are also called ^ CPA firms because most of their professional employees are CPAs. CPA firms vary greatly in size. Some are small businesses, and others are medium-sized partnerships. The largest CPA firms are worldwide partnerships with over 2,000 partners. Such huge firms are necessary because some of their clients are so large and their operations are so complex.

In contrast to public accountants who provide accounting services for many clients, management accountants provide accounting services for a single business. In a company with many management accountants, the executive officer in charge of the accounting activity is often called a controller.


  1. What are public accountants?

  2. What are private accountants?

  3. What is CPA?


T E X T 11


Read the text and be ready to comment on the points of the code. What other professions can use the same principles ?

^ ETHICAL BEHAVIOUR OF ACCOUNTANTS

Several accounting organizations have formulated codes of ethics that govern the behaviour of their members. «Code of Professional Conduct» adopted by the American Institute of Certified Public Accountants reads:

«Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a certified public accountant assumes an obligation of self-discipline above and beyond the requirements of laws and regulations...»

...In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

...Members should accept the obligation to act in a way that will serve the public interest, honour the public trust, and demonstrate commitment to professionalism.

...A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.

...To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

...A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.»

Some business firms have also developed codes of ethics for their employees to follow. But there is something more than merely making sure you are not violating a code of ethics. Most of us sense what is right and wrong. An accountant’s most valuable asset is his or her reputation.


Auditing


What do you know about auditing?

^ How can we translate the word into Russian?

What is auditor’s job supposed to be?


The answers to these questions can be found in the following texts.


T E X T 12


AUDITING


Auditing is the process by which a competent, independent person accumulates and evaluates evidence about qualifiable information related to a specific economic entity for the purpose of determining and reporting on the degree of correspondence between the quantifiable information and established criteria. This definition includes several key words and phrases. Let’s discuss each of them.

Qualifiable information and established criteria. To do an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information. Quantifiable information can and does take many forms. It is possible to audit such things as a company’s financial statements, the amount of time it takes an employee to complete an assigned task, the detail cost of a contract, and individual tax return. The criteria for evaluating qualitative information can also vary considerably. For example, in auditing a vendor’s invoice for the acquisition of raw materials, it is possible to determine whether materials of the quantity and stated description were actually received, whether the proper raw material was delivered considering the production needs of the company, or whether the price charged for the goods was reasonable.

^ Economic entity is a legal entity, such as a corporation, unit of government, partnership, etc. Whenever an audit is conducted, the scope of the auditor’s responsibilities must be made clear. The primary method involves defining the economic entity and the time period, the last typically being one year, but may be for a month, a quarter, several years, and even the life time of entity.

Accumulating and evaluating evidence. Evidence is defined as any information used by the auditor to determine whether the quantifiable information being audited is stated in accordance with the established criteria. Evidence takes many different forms, including oral testimony of the auditee (client), written communication with outsiders, and observations by the auditor. It is important to obtain a sufficient quality and volume of evidence to satisfy the audit objectives.

Competent, independent person. The auditor must be qualified to understand the criteria used and competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined. The auditor must also have an independent mental attitude. Independence cannot be absolute by any means, but it must be a goal that is worked toward and it can be achieved to a certain degree. Even though an auditor is paid by a company, he or she may still be sufficiently independent to conduct audits that can be required and can be relied upon by users.

Reporting is the communication of the findings to users. The final stage in the audit process is the audit report. Reports differ in nature, but in all cases they must inform readers of the degree of correspondence between quantifiable information and established criteria. Reports also differ in form and can vary from the highly technical type usually associated with financial statements to a simple oral report in the case of an audit conducted for a particular individual.

Very often the general public confuses auditing with accounting. It happens due to the fact that most auditing is concerned with accounting information, and many auditors have considerable expertise in accounting matters. Auditing is the process of recording, classifying and summarizing economic events in a logical manner for the purpose of providing financial information for decision making. The function of accounting is to provide certain types of quantitative information that management and others can use to make decisions. In addition, accountants must develop a system to make sure that the entity’s economic events are properly recorded on a timely basis and at a reasonable cost.

In auditing accounting data, the concern is with determining whether recorded information properly reflects the economic events that occurred during the accounting period. Since the accounting rules are the criteria for evaluating whether the accounting information is properly recorded, any auditor involved with these data must also thoroughly understand rules. In addition to understanding accounting, the auditor must also possess expertise in the accumulation and interpretation of audit evidence. Determining the proper audit procedures, sample size, particular items to examine, timing of the tests, and evaluating the results are problems unique to the auditor.


T E X T 13


^ TYPES OF AUDIT


Three types of audit are the main ones: operational audits, compliance audits, and audits of financial statements.

Operational audits is a review of any part of an organization’s operating procedure and methods for the purpose of evaluating efficiency and effectiveness. At the completion of an operational audit, recommendations to management for improving operations are normally expected. In operational auditing, the reviews are not limited to accounting. They can include the evaluation of organization structure, computer operation, production methods, marketing, and any other area in which the auditor is qualified. In this sense, operational auditing is more similar to management consulting then to what is generally required as auditing.

Compliance audits. The purpose of the compliance audits is to determine whether the auditee is following specific procedures or rules set down by some higher authority. A compliance auditing could include determining whether accounting personnel are following prescribed procedures, reviewing wage rates for compliance with minimum laws, or examining contractual agreements with bankers and other lenders, etc.

Audits of financial statements. This type of auditing is conducted to determine whether the overall financial statements are stated in accordance with specific criteria. The assumption underlying an audit of financial statements is that they will be used by different groups for different purposes. Normally, the criteria are generally accepted accounting principles.


1.What is auditing?

2.What is the difference between auditing and accounting?

3.Speak about each ‘component’ of the definition of auditing.

4.What types of auditing have you read about?


Ex.9. Make up the sentences. Put them down into your notebooks. The first word is given to you.


1. Assets, enterprises, and, plant, property, financial, and, include, in, investments, equipment, subsidiaries, leases, other. 2. Assets, transactions, from, non-cash, arise, may, past, be, events, which, cash, or. 3. Liabilities, obligations, include, financial, long-term, similar, loans, and, debentures, and, plans, payables, short-term, pension, overdrafts, and, bank, loans. 4. Equity, enterprise, of, is, the, residual, reporting, a, assets, arising, the, from, deduction, the, from, liabilities, of. 5. Revenues, enterprise, are, the, inflows, of, enhancement, activities, of, normal, assets, that, the, arise, of, in, course, the. 6. Expenses, activities, are, outflows, normal, or, enterprise’s, depletions, the, of, , course, in, the, that, assets, arise, of.


Ex. 10. Insert prepositions.

  1. Accountants frequently refer … a business organization as an accounting entity.

  2. Business activities are limited … transactions.

  3. First of all the firm must enter … a legal contract … the acquisition of means of production.

  4. It means an obligation to pay money … a later date.

  5. Transaction … the firm occur between the various departments.

  6. The input factors are transferred … goods and services.

  7. Usually it is done … a yearly basis.

  8. Accounting is concerned … providing information … managers.

  9. Transactions lead … an outflow of money.

  10. Accountants provide most of the information needed by external users of financial accounting.

  11. Financial statements are formal reports providing information … a business’ financial position.

  12. The external users rely … relevant & reliable financial statements.

  13. They provide detailed explanations … why actual costs varied … cost estimated.

  14. They must decide … how much merchandise inventory to keep … hand.

  15. The general public is interested … the amount of income that business earn.

  16. They include depreciations … factory buildings and equipment.


Ex. 11. Translate the following sentences. Pay special attention to the word charge. Give your own sentences using as many meanings of the word as you can.


  1. Please charge the bill to my account.

  2. The bank charges me 25 % interest on the loan.

  3. They are happy to give their services free of charge.

  4. He denied the crimes with which he was charged.

  5. She was in charge of several young people.

  6. It requires electricity to charge up its batteries.

  7. I have no option but to charge you strictly to say nothing about it.

  8. He has been in charge of department for 10 years.

  9. For any organization it is important who is charged with directing and controlling its operations.

  10. They charged us one thousand dollars for it.



Ех. 12. Speak on the following.


Accounting information


General public


Owners & pro-

spective owners









Creditors &

lenders


Employees

Customers


Governmental units

Ex. 13. Work


Ex.13. Work with synonyms. Differentiate between

  1. buy – purchase

  2. expenses – expenditures – costs

  3. income – revenue

  4. profit – return

  5. rent – hire – lease


Ex. 14. Translate the following text in written form.


Bookkeeping


Bookkeeping is writing down all the transactions arising from business activities which can be expressed in money. To run your business well you must know what money you have received, how much money you have spent and, most important of all, how you spent it A bookkeeping system can provide you with that information. The books used for keeping records consist of a ledger and subsidiary books.

The ledger is the general book in which you enter almost all the figures arising from your business activities. A ledger consists of a number of accounts. A chart of accounts serves as an index to the ledger, and each account is numbered to facilitate the frequent refernces that are made to it.. An account is a column in the ledger that has been given a specific name, e.g. Cash, Bank, Sales and etc.

^ The invoice book helps you to remember who owes the business money for goods and services you have sold but have not been paid for. When you have delivered a commodity or provided a service you send an invoice to the customer. You keep a copy of the invoice in the invoice book.

The purchase journal is used to write down details of goods and services bought on credit which are not yet paid for. The invoice you receive from the supplier is kept in the purchase journal until it is fully paid.

^ The wages book. In this book you make notes about your employee anmes, wages, advance payments and so on.


Ex. 15. In turns, explain the meaning of the economic terms given below to your partner.


Accounting, cost, income, liabilities, transaction, cost accounting, assets, balance sheet, debit, credit, invisible assets, account, double-entry, expenses, direct costs, cash, ledger, invoice book, revenue, owner’s equity, profit & loss account, scheduled payments, inventory.


Ex. 16. Form nine complete sentences by combining sentence parts from (A), (B) and (C).

A

  1. a business organization

  2. whenever the firm

  3. Decreases result from

  4. the owner’s claim to

  5. The account title

  6. individuals and business

  7. Some business firms

  8. the opening cycle is treated

  9. increases and decreases in the firm

B

  1. Accountants frequently refer to

  2. In financial accounting

  3. for which the account was established

  4. Local, state and federal governments

  5. enters into a legal contract

  6. withdrawals by the owner and

  7. have also developed codes of ethics

  8. the assets of the business

  9. should be logical to help

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