Why has accounting been called “the language of financial decisions”?

Why is it more important for college students to study accounting and finance?

What are financial statements?

Why accounting information is so necessary for managers (decision-makers)?

What is the difference between accounting and bookkeeping?

Text 3. USERS OF 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 organizations, 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 reasonable expect on their investment. This means analyzing the financial statements of the new business. Those people who do invest monitor the progress of the business by analyzing the company’s financial statements and by keeping up with its developments in the business press, for example, The Wall Street Journal, Business Week, Forbes, and Fortune.

Ответьте на вопросы:

Who are users of accounting information?

Why do they use it?

Read the text and answer the following questions:

How old is accounting?

What century does it date back?

3. When did the main bookkeeping terms appear such as "double entry
bookkeeping", "income",

4. What does the words "debit" and "credit" mean?

When and why were developed more complicated accounting systems?

6. Why is term "data processing" associated with bookkeeping?

Text 4. THE DEVELOPMENT OF THE ACCOUNTING THOUGHT

Accounting has a long history. Some scholars claim that writing arose in order to record accounting information. Account records date back to the ancient civilizations of China, Babylonia, Greece, and Egypt. The rulers of these civilizations 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 1440s. In that commercial climate the monk Luca Pacioli, a mathematician and friend of Leonardo da Vinci, published the first known description of double-entry book-keeping 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 and increased competition required merchants to adopt more sophisticated accounting systems.

In the 19^th 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 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 development. When the federal government started the income tax, accounting supplied the concept of "income". Also, government at all levels has expanded its role in health, education, labour, and economic planning and it required strict accountability and compliance with standards in the business community.

Since the mid—20^lh century bookkeeping as an essential part of all accounting systems has been carried out by machines. The introduction of computers broadened the scope of bookkeeping and the term "data processing" now often associates with bookkeeping.

Exercise. Complete the following sentences according to the text .

Some scholars assume that writing appeared because it was necessary...

In 1440s they were... who developed accounting further as a result of
information needs.

The first known description of double-entry book-keeping was made by... in

Debit and credit today were originated from Latin words... which mean...

More sophisticated accounting systems appeared during... when developed
countries began...

In the 19^th century managers had to develop accounting systems...

Strict accountability and many accounting terms, such as "income", for
example, were supplied because...

Since the mid- 20^th century bookkeeping... and the introduction of computers...

 

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Text 5. Accounting

Accounting shows a financial picture of the firm. An accounting department records and measures the activity of a business. It report on the effects of the transactions on the firm financial condition. Accounting records gives a very important data. It is used by management, stockholders, creditors, independent analysts, bank and governments.

Most businesses prepare regularly the two types of records. That is the income statement and balance sheet. These statements show how money was received and spent by the company.

One major tool for the analysis of accounting records is ratio analysis. A ratio analysis is the relationship of two figures. In finance we operate with three main categories of ratios. One ratio deals with profitability, for example, the return on Investment Ratio. It is used as a measure of a firms operating efficiency.

The second set of ratios deals with assets and liabilities. It helps a company to evaluate its current financial structure of the company. It analyses the value of the ownership of the firm.

Notes to the text

Ratio analysis анализ коэффициентов

Profitability прибыльность

Return on investment ratio коэффициент возвращения инвестиций

Answer the questions:

What is the purpose of accounting?

Who used the data provided by accounting firm?

What are the two types of records which most businesses prepare?

What can you know analyzing the income statement and balance sheet of a company?

What is the purpose of the ratio analysis?

What categories of ratio in finance do you know?

Vocabulary Exercises

Exercise 1.

An accounting helps … the activity of a business. Do you know the effect of you last … on financial condition of the firm. Accounting records provide … for stockholders, independent analysts. The second type of ratio helps the company … its current financial position. … is one of the two main records which most of the businesses prepare regularly. The … of the company includes real estate in California. I am sure of the … of this transaction. Our company’s current … is very high. They … from the association with that corporation.

to profit profit efficiency ownership to evaluate transaction data income statement to measure

Text 6. BOOKKEEPERS, ACCOUNTANTS AND CONTROLLERS

Bookkeepers deal in taxes, cash flow, which includes cash receipts and cash disbursements, sales, purchases and different business transactions of the company.

Bookkeepers first record all the appropriate figures – in the books of original entry, or Journals. At the end of a period usually a month – the totals of each book of original entry are posted into the proper page of the Ledger. The Ledger shows all the expenditures and all the totals of each account in the Ledger. The bookkeeper prepares a Trial Balance. Trial Balances are usually drawn up every quarter.

The accountant’s responsibility is to analyze and interpret the data in the Ledger and the Trial Balance.

The accountant is to determine the ways in which the business may grow in the future. No expansion or reorganization is planned without the help of the accountant. New products and advertising campaigns are also prepared with the help of the accountant. The work of accountants is rather sophisticated after they pass examinations in Institute of Accountants. Certified accountants in England are called chartered accountants. In the USA the certified accountants are called certified public accountants. But it is not necessary to have a certificate to practice accounting. Junior employees in large companies, for example, often practice accounting and then take examinations. The chief accounting officer of a large company is the Controller, or Comptroller.

Controllers are responsible for measuring the company’s performance. They interpret the results of the operations, plan and recommend future action. This position is very close to the top executives of the company.

Notes to the text: