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: Owners' equity = assets – liabilities (The owners' equity is equal to the assets minus the liabilities) For a sole proprietorship or partnership, the owners' 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 owners' 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

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 semi-annually, quarterly, or monthly.

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 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 the industry as a whole.

III. Give Russian equivalents:

the items of value, debts and obligations, assets and liabilities, proprietorship, each partner’s share of the ownership, to report separately, total value, a balance sheet, semiannually, quarterly, annually, summary of revenues and expenses, to cover the previous year, to compare with the corresponding information, financial ratios, to provide a picture of the firm’s profitability, past accounting periods.

IV. Complete the sentences.

1. Assets are the items of value …

2. Owner’s equity is the difference …

3. The relationship between these three …

4. For a sole proprietorship …

5. For a corporation …

6. By moving the above three terms …

7. A balance sheet is a summary of …

8. An income statement is a summary of …

V. Agree or disagree to the following.

1. The basis for the accounting process is the accounting equation.

2. Assets are the items of value that a firm owns.

3. Liabilities are the firm’s debts and obligations.

4. Owner’s equity = assets + liabilities

5. The standard form of the accounting equation is assets = liabilities – owner’s equity

6. A balance sheet is usually prepared weekly.

7. The income statement is sometimes called the statement of income and expenses.

8. The information becomes more important when it is compared with corresponding information of the previous year.

VI. Continue the chain:

1. cash, …, land, equipment, …

1. owner’s equity = assets …

1. assets =…..

1. annually, semiannually, …., …..

VII. Find in the text and write down the sentences in the Passive Voice.

VIII. Find in the text and write down all nouns in the Possessive Case. Translate them.

IX. Answer the questions.

1. What is the basis for the accounting process?

2. What does the accounting equation show?

3. What do assets include?

4. How is the owner’s equity shown for a sole proprietorship?

5. What is a balance sheet?

6. How often is a balance sheet prepared?

7. What makes the information of a balance sheet and income statement more important?

8. What do financial ratios provide?

X. Speak about.

1. The basis for the accounting process.

2. A balance sheet.

3. An income statement.

4. The importance of the above two statement.

Lesson X

I. Read and translate the following international words without using a dictionary:

operations, activity, product, idea, relevant, firm, fact, conversion, resource, technology, process, to vary, result, limited, cycle, company, to invest, planning, design, problem, line, human, to focus, periodic, horizon, inventory, control, material, finished, to minimize, total, specification, automation, machine, office, industry, programmable robot, system, computer, traditional.

II. Remember the following words:

input – поступление

output goods – выпускаемая продукция

R & D = research and development – исследования и разработка

life cycle – срок службы

to spur – стимулировать

operations planning – производственное планирование

design planning – план реализации идей

product line – товарный ассортимент

inventory cost – стоимость товарно-материальных запасов

shipment – отправка

tedious – скучный, утомительный

robotics - робототехника

batch – зд. партия