Accounting

 

8.5.2 Complete the following texts using the suitable words or phrases from the box.

 

Text 1

 

A	income	E	legal liability
B	debtors	F	stated
C	taxes	G	cash
D	accounting	H	periods

 

Revenue

        Definition: Revenue is the total exchange value of the goods or services of a business which have been transferred to a customer in return for _____(1)_____ or some other asset, e.g. _____(2)_____. The following important points need to be known about revenue:

• The “Realization Concept” in _____(3)_____ recognizes a sale on acceptance of _____(4)_____ for payment by the buyer. Revenue can be in the form, therefore, of either cash payments or amounts owing (debtors).
• Revenue is not the same as receipts. Revenue refers to ____(5)____ earned in that financial period, whereas receipts may include earnings from other ____(6)____.
• Revenue is always ____(7)____ exclusive of any _____(8)_____, e.g. Value Added Tax.

 Text 2

 

A	deducted	E	similar
B	include	F	states
C	revenue	G	associated
D	accounting period	H	against

 

Expenses

       These represent the amounts charged ____(1)____ profit in respect of goods and services consumed during an ____(2)____. The 'matching principle' or 'accrual concept' ____(3)____ that from revenues of a period must be ____(4)____ all expenses of the benefits used in producing that revenue. In a ____(5)____ way to ____(6)____ and receipts, expenses are not the same as payments. Expenses refer only to those costs ____(7)____ with the goods or services sold in the period, whereas payments may ____(8)____ items from previous periods, or advanced expenditure for costs to be incurred in later periods.

Text 3

 

A	overhead	E	period
B	administrative	F	direct labor
C	costs	G	accounting
D	referring	H	identified

 

Costs

       Direct or product costs are those ____(1)____ which can be  accurately attributed to and identified with specific goods, e.g. raw materials, ____(2)____ and some production overheads. Indirect or period costs are those ____(3)____ expenses which are not easily ____(4)____ with a given output but refer to a ____(5)____ of time, e.g. selling and ____(6)____ costs. Product and period costs ____(7)____ to items sold in an ____(8)____ period are known as revenue expenditure.

 

8.5.3 Complete the text. Replace the Russian words and phrases by the English equivalents.

Laws, Rules and Standards

       В большинстве continental European countries, и в Японии, существуют законы relating to бухгалтерскому учету established правительством. In the US, компании чьи акции are traded on public фондовых биржах have to follow rules установленные by the Securities and Exchange Commission (SEC), a правительственным органом. In Britain, the rules, которые называются стандартами, have been established by независимыми организациями such as the Accounting Standards Board (ASB), and by the учетными работниками itself. Companies are expected to apply или использовать эти стандарты in their годовых отчетах in order to дать достоверное и объективное представление. Companies в большинстве англо-говорящих стран are largely финансируются акционерами, both individuals and финансовыми институтами. In these countries, the финансовые отчеты are prepared для акционеров. Однако, in many continental European countries фирмы are largely funded by банками, so бухучет и финансовые отчеты are prepared для кредиторов and the tax authorities.

 

8.5.4 Text for discussion.

a. Look up the dictionary or Unit 8 Glossary for the meaning and pronunciation of the following words and word-combinations and use them to discuss the problems outlined in the text.

An Annual Report; A Directors' Report; commentary; envisaged; board of directors; A Chairman's Statement; An Auditor's Report; a 'true and fair view'; Notes to the Accounts; Statistical Tables; Added Value Statement.    

 

b. Briefly scan the text and outline the list of major points.

c. Read the text more carefully and comment on the following items:

-   the necessity  of preparing  The Annual Report by private limited companies, public limited companies in the UK and corporations in the USA (See Unit 1 Glossary of Professional Financial English)

-   the importance of different reports and statements within the Annual Report;

-   the reasons for which the Annual Report should contain An Auditor's Report.

 

Additional Statements

       As well as the Balance Sheet, the Income Statement and the Funds Flow or Cash Flow statement an annual report to shareholders should also contain:

• A Directors' Report: a short written statement providing a commentary on the company's current position and any important changes envisaged in the near future. It will also include the recommended dividend together with any changes in the board of directors.
• A Chairman's Statement: a broader outlook at factors affecting the company in the past, present and future. It may include items such as political events which are likely to have an impact on company affairs.
• An Auditor's Report: this is required by law and will declare if the accounts have been prepared according to accounting practice and whether they give a 'true and fair view' of the company's financial position.
• Notes to the Accounts: a more detailed explanation of certain items in the accounts such as changes in fixed assets, shareholders' funds or long-term liabilities.
• Statistical Tables: a summary of the main accounting information over the past five or ten years.

In addition, the report might contain an Added Value Statement, which is an alternative method of showing the wealth created by the business.

 

 8.6 Render the passage in English using the English equivalents of the italicized phrases given in Russian. Express the main idea of the passage in one sentence.

Необоротные Активы

       Активы компании обычно делятся на текущие активы, такие как денежные средства и товарно-материальные запасы, которые будут использованы или конвертированы в (converted into) денежные средства менее чем через (in less than) год, и необоротные активы, такие как здания и оборудование (buildings and equipment), которые будут продолжать использоваться предприятием в течение многих лет. Однако, необоротные активы изнашиваются (wear out), становятся непригодными (unusable) либо устаревшими (obsolete) и со временем (eventually) теряют стоимость (decrease in value). Следовательно (Consequently), необоротные активы обесцениваются (are depreciated) - их стоимость по балансу (on the balance sheet) уменьшается каждый год с помощью записи на счет прибыли (by a charge against profits) в (on) отчете о прибылях и убытках. Другими словами, часть стоимости актива вычитается (is deducted) из прибылей каждый год. Бухгалтерский метод (technique) списания делает ненужным (makes it unnecessary) записывать всю стоимость (to charge the whole cost) необоротного актива на счет прибылей в тот год, когда актив куплен. Вместо этого (Instead), его можно списывать (charged) в течение всех тех лет, когда он используется. Это пример принципа соответствия.

 

 

 

 

 

 

 

 

UNIT 8  Glossary

 

ACCOUNT A section in a ledger devoted to a single aspect of a business (e.g. a Bank account, Wages account, Office expenses account).

ACCOUNTING CYCLE It covers everything from opening the books at the start of the year to closing them at the end. In other words, everything you need to do in one accounting year accounting wise.

ACCOUNTING EQUATION The formula used to prepare a balance sheet: assets = liability + equity .

ACCRUAL METHOD OF ACCOUNTING Most businesses use the accrual method of accounting (because it is usually required by law). When you issue an invoice on credit (i.e. regardless of whether it is paid or not), it is treated as a taxable supply on the date it was issued for income tax purposes (or corporation tax for limited companies). The same applies to bills received from suppliers. (This does not mean you pay income tax immediately, just that it must be included in that year's profit and loss account).

ACCRUAL OR MATCHING CONCEPT this concept recognizes revenues and costs as they are earned or incurred rather than as money is received or paid. The income statement is prepared for a uniform time period and the accountant must ensure that revenues and expenses of activities undertaken in that period are matched within that period.

AMORTIZATION The depreciation (or repayment) of an (usually) intangible asset (e.g. loan, mortgage) over a fixed period of time. Example: if a loan of 12,000 is amortized over 1 year with no interest, the monthly payments would be 1000 a month.

ANNUAL GENERAL MEETING (A.G.M.) It is a meeting that official bodies, and associations involving the public, are often required by law (or the constitution, charter, by-laws etc. governing the body) to hold. An AGM is held every year to elect the Board of Directors and inform their members of previous and future activities. It is an opportunity for the shareholders and partners to receive copies of the company's accounts as well as reviewing fiscal information for the past year and asking any questions regarding the directions the business will take in the future.

APPROPRIATION ACCOUNT An account in the nominal ledger which shows how the net profits of a business (usually a partnership, limited company or corporation) have been used.

ASSETS Assets represent what a business owns or is due. Equipment, vehicles, buildings, creditors, money in the bank, cash are all examples of the assets of a business. Typical breakdown includes 'Fixed assets', 'Current assets' and 'non-current assets'. Fixed refers to equipment, buildings, plant, vehicles etc. Current refers to cash, money in the bank, debtors etc. Non-current refers to any assets which do not easily fit into the previous categories (such as Deferred expenditure ).

AT COST The 'at cost' price usually refers to the price originally paid for something, as opposed to, say, the retail price.

AUDIT The process of checking every entry in a set of books to make sure they agree with the original paperwork (e.g. checking a journal's entries against the original purchase and sales invoices).

BALANCE SHEET  A summary of all the accounts of a business. Usually prepared at the end of each financial year. The term 'balance sheet' implies that the combined balances of assets exactly equals the liabilities and equity (aka net worth).

BANK OVERDRAFT This occurs when the bank allows the company to withdraw funds in excess of its present balance. They are legally repayable 'on demand' and are therefore included as a current liability, even when such arrangements may last for a longer period.

BANKRUPT If an individual or unincorporated company has greater liabilities than it has assets, the person or business can petition for, or be declared by its creditors, bankrupt. In the case of a limited company or corporation in the same position, the term used is insolvent.

BILL  A term typically used to describe a purchase invoice (e.g. an invoice from a supplier).

CAPITAL An amount of money put into the business (often by way of a loan) as opposed to money earned by the business.

CASH  A current asset account which includes currency, coins, checking accounts, and undeposited checks received from customers. The amounts must be unrestricted. (Restricted cash should be recorded in a different account.)

CASH FLOW STATEMENT  A report which shows the flow of money in and out of the business over a period of time.

CASH IN HAND See UNDEPOSITED FUNDS ACCOUNT

CONSISTENCY This means adopting the same procedure every time for recording and measuring items. If this were not followed the comparison of accounts from one period to another would be meaningless.

COOK THE BOOKS  Falsify a set of accounts. See also CREATIVE ACCOUNTING

CREATIVE ACCOUNTING A questionable means of making a company's figures appear more (or less) appealing to shareholders etc. An example is 'branding' where the 'value' of a brand name is added to intangible assets which increases shareholders funds (and therefore decreases the gearing ). Capitalizing expenses is another method (i.e. moving them to the assets section rather than declaring them in the Profit & Loss account).

CREDIT A column in a journal or ledger to record the 'From' side of a transaction (eg. if you buy some petrol using a check then the money is paid from the bank to the petrol account, you would therefore credit the bank when making the journal entry).

CREDIT NOTE  A sales invoice in reverse. A typical example is where you issue an invoice for £100, the customer then returns £25 worth of the goods, so you issue the customer with a credit note to say that you owe the customer £25.

CREDITORS This covers goods and services received which have yet to be paid for.

CURRENT ASSETS These comprise short-term resources which will be used up or change their form during the next 12 months. When current liabilities are deducted, the resulting total is often referred to as working capital or circulating capital because they constantly change form from cash to stock to debtors and back to cash again. This is the life-cycle of the business. The constituent parts will be stocks (raw materials, work-in-progress and finished goods), debtors (amounts owed to the company)  and cash (both cash in hand and cash at the bank).

 

CURRENT LIABILITIES      Debts which require payment within 12 months of the balance sheet date. They comprise creditors, bank overdraft, taxation and dividends payable.

DEBENTURE This is a type of share issued by a limited company. It is the safest type of share in that it is really a loan to the company and is usually tied to some of the company's assets so should the company fail, the debenture holder will have first call on any assets left after the company has been wound up.

DEBIT A column in a journal or ledger to record the 'To' side of a transaction (e.g. if you are paying money into your bank account you would debit the bank when making the journal entry).

DEBTORS A list of customers who owe money to the business. An account in the nominal ledger which contains the overall balance of the Sales Ledger.

DEPRECIATION  The value of assets usually decreases as time goes by. The amount or percentage it decreases by is called depreciation. This is normally calculated at the end of every accounting period (usually a year) at a typical rate of 25% of its last value. It is shown in both the profit & loss account and balance sheet of a business. See straight-line depreciation .

DIVIDENDS These are payments to the shareholders of a limited company.

DIVIDENDS PAYABLE An amount of profit set aside to cover the proposed final dividend. Once it has received approval at the company's A.G.M. it can be paid to shareholders.

 

DOUBLE-ENTRY All transactions involve two sides: giving and receiving. This is acknowledged in the double-entry system of book-keeping where the acquisition of funds is balanced by the use made of them.

DOUBLE-ENTRY BOOKKEEPING A system which accounts for every aspect of a transaction - where it came from and where it went to. This from and to aspect of a transaction (called crediting and debiting) is what the term double-entry means. Modern double-entry was first mentioned by G Cotrugli, then expanded upon by L Paccioli in the 15th century.

ENTRY  Part of a transaction recorded in a journal or posted to a ledger.

EQUITY  The value of the business to the owner of the business (which is the difference between the business's assets and liabilities).

EXPENSES  Goods or services purchased directly for the running of the business. This does not include goods bought for re-sale or any items of a capital nature (see Stock and Fixed Assets ). These represent the amounts charged against profit in respect of goods and services consumed during an accounting period.

FIFO  First In First Out. A method of valuing stock.

FISCAL YEAR  The term used for a business's accounting year. The period is usually twelve months which can begin during any month of the calendar year (eg. 1st April 2001 to 31st March 2002).

 

FIXED ASSETS Long-term resources of the business which are designated to be used for more than one accounting period. They include such items as property, plant and machinery, office equipment and vehicles, fixtures and fittings.

 

FIXTURES AND FITTINGS  This is a class of fixed asset which includes office furniture, filing cabinets, display cases, warehouse shelving and the like.

FLOW OF FUNDS STATEMENT  This is a report which shows how a balance sheet has changed from one period to the next.

GOING CONCERN The organization is assumed to be an enterprise that will 'continue in business for the forseeable future”. In practical terms this means valuing assets at cost on the assumption they are worth at least that amount. If a business were planning to close down, the most important information would be realizable value (value if sold) of the assets, which might be less or more than cost, e.g. machinery and land.

GOODWILL  This is an extra value placed on a business if the owner of a business decides it is worth more than the value of its assets. It is usually included where the business is to be sold as a going concern.

GROSS LOSS  The balance of the trading account assuming it has a debit balance.

GROSS PROFIT The balance of the trading account assuming it has a credit balance.

HISTORIC COST All items are valued at cost. Where items fall in value through use they are depreciated or written down in value. Note however that freehold land and buildings are revalued at intervals, with the surplus or deficit on revaluation being reflected in the accounts.