The basis for the accounting process

Basis	Основа
Accounting equation	Бухгалтерская сбалансированность (дебет и кредит)
Relationship	Соотношение
Assets	Активы, авуары, актив баланса
Own	Владеть
Item of value	Материальные ценности
Owner	Владелец, собственник
Debt	Долг
Obligation	Обязанность, обязательство
Owner’s equity	Собственный (уставной) акционерный капитал
Pay off	Расплачиваться (с)
Term	Здесь понятие, значение
Sole	Единоличный
Proprietorship	Право собственности
Partnership	Партнерство, товарищество
Share	Доля
Report	Сообщать
Is referred (to)	Называться
Stockholder’s equity	Доля акционера
Retained earning	Нераспределенная прибыль
Accumulate	Накапливать(ся)
To date	К определенному времени
Move	Переставлять
Above	Вышеуказанный
Algebraically	Алгебраически
Obtain	Получать

 

A balance sheet

Statement	Отчет
Summary	Сводка, краткое изложение
Particular	Конкретный
Various	Различный
Enter	Входить
Demonstrate	Показывать
Indeed	Действительно
Balance	Уравновешиваться
That is	То есть
Prepare	Готовить
At least	По крайней мере
Once	Один раз
Semiannually	Раз в полгода
Quarterly	Ежеквартально

An income statement

Income statement	Отчет, счет прибылей (и убытков)
Summary	Сводка
Cover	Охватывать, учитывать
Previous	Предыдущий
Annual report	Годовой отчет

The importance of the above two statements

Importance	Важность
Compare	Сравнивать
Competitor	Конкурент
A number (of)	Ряд
Ratio	Соотношение, коэффициент
Compute	Вычислять
Provide	Давать
Profitability	Доходность
Account receivable	Сумма, причитающаяся к получению, дебиторская задолженность
Long-term	Долгосрочный
Debt financing	Долговое финансирование (т.е. путем получения займов)
Like	Как
Those	Здесь заменяет слово ''отчеты''
Accounting period	Отчетный период
Average	Средняя величина
As a whole	В целом

General definition of accounting

Today, it is impossible to manage a business operation without accurate and timely accounting information. Managers and employees, lenders, suppliers, stockholders, and government agencies all rely on the information contained on two financial statements. These two reports – the balance sheet and the income statement – are summaries of a firm’s activities during a specific time period. They represent the results of perhaps tens of thousands of transactions that have occurred during the accounting period.

Accounting is the process of systematically collecting, analyzing, and reporting financial information. The basic product that an accounting firm sells is information needed for the clients.

Many people confuse accounting with bookkeeping. Bookkeeping is a necessary part of accounting. Bookkeepers are responsible for recording (or keeping) the financial documents that the accounting system processes.

The primary users of accounting information are managers. The firm’s accounting system provides the information dealing with revenues, costs, accounts receivables, amounts borrowed and owed, profits, return on investment, and the like. This information can be compiled for the entire firm; for each product; for each sales territory, store or individual salesperson; for each division or department; and generally in any way that will help those who manage the organization. Accounting information helps managers plan and set goals, organize motivate, and control. Lenders and suppliers need this accounting information to evaluate credit risks. Stockholders and potential investors need the information to evaluate soundness of investments, and government agencies need it to confirm tax liabilities, confirm payroll deductions, and improve new issues of stocks and bonds. The firm’s accounting system must be able to provide all this information, in the required form.

The basis for the accounting process

The basis for the accounting process is the accounting equation. It shows the relationship among the firm’s assets, liabilities and owner’s equity.

Assets are the items of value that a firm owns – cash, inventories, land, equipment, buildings, patents, and the like.

Liabilities are the firm’s debts and obligations – what it owes to others.

Owner’s equity is the difference between a firm’s assets and its liabilities – what would be left over for the firm’s owners if its assets were used to pay off its liabilities.

The relationship among these three terms is the following:

Owner’s equity = assets – liabilities

(The owner’s equity is equal to the assets minus the liabilities)

For a sole proprietorship or partnership, the owner’s equity is shown as the difference between assets and liabilities. In a partnership, each partner’s share of the ownership is reported separately by each owner’s name. For a corporation, the owner’s equity is usually referred to as stockholders’ equity or shareholders’ equity. It is shown as the total value of its stock, plus retained earnings that have accumulated to date.

By moving the above three terms algebraically, we obtain the standard form of the accounting equation.

Assets = liabilities + owners’ equity

(The assets are equal to the liabilities plus the owners’ equity)

A balance sheet

A balance sheet (or statement of financial position), is a summary of a firm’s assets, liabilities, and owners’ equity accounts at a particular time, showing the various money amounts that enter into the accounting equation. The balance sheet must demonstrate that the accounting equation does indeed balance. That is, it must show that the firm’s assets are equal to its liabilities plus its owners’ equity. The balance sheet is prepared at least once a year. Most firms also have balance sheets prepared semiannually, quarterly, or monthly.

An income statement

An income statement is a summary of a firm’s revenues and expenses during a specified accounting period. The income statement is sometimes called the statement of income and expenses. It may be prepared monthly, quarterly, semiannually, or annually. An income statement covering the previous year must be included in a corporation’s annual report to its stockholders

The importance of the above two statements

The information contained in these two financial statements becomes more important when it is compared with corresponding information for previous years, for competitors, and for the industry in which the firm operates. A number of financial ratios can also be computed from this information. These ratios provide a picture of the firm’s profitability, its short-term financial position, its activity in the area of accounts receivables and inventory, and its long-term debt financing. Like the information on the firm’s financial statements, the ratios can and should be compared with those of past accounting periods, those of competitors, and those representing the average of industry as a whole.

Answer the questions:

1. What is accounting? Give a short definition.
2. It is possible to manage a business operation without accurate and timely accounting information?
3. Who needs accounting information? Explain why.
4. What is the basis for accounting process?
5. State (изложите) the standard form of the accounting equation.
6. What is the balance sheet? Give a short definition.
7. What must a balance sheet show?
8. What is an income statement?
9. What can be computed from the information contained in a balance sheet and an income statement?
10. Do the ratios computed from this information provide a picture of a firm’s profitability and its financial position?
11. Is this information for competitors?

LEXICAL EXERCISES

Exercise 1. Fill in the missing words in the sentences below. Choose from the following. You should use each word more than once.