Income Statement

For the Year Ended December 31, 200…

211

Revenues Gross sales Less: Returns and allowances Less: Discounts NET SALES Cost of Goods Sold Beginning inventory Purchases for the year Less: Purchase discounts Net purchases Cost of goods available for sale Less: Ending inventory COST OF GOODS SOLD Gross Profit Operating Expenses Selling expenses Wages Advertising Store supplies Payroll taxes Rent Repairs and maintenance Auto and truck Insurance Utilities Depreciation and amortization Miscellaneous TOTAL SELLING EXPENSES General expenses Professional services Office supplies Miscellaneous TOTAL GENERAL EXPENSES TOTAL OPERATING EXPENSES OPERATING INCOME Other Income and Expenses Interest expense Interest income TOTAL INCOME AND EXPENSES INCOME BEFORE TAXES INCOME TAXES NET INCOME	$198,267 5,300	$478,293 3,079 1,200	$474,014 190,755
		$ 10,473 192,967 $203,440 12,685
	$101,700 18,075 24,016 10,170 31,142 7,418 11,697 4,068 8,700 13,245 400 $ 3,916 1,354 300
		$230,631 5,570
			$283,259 236,201 $ 47,058 3,764 $ 43,294 6,494 $ 36,800
		$ 4750 (986)

2. Answer the following questions on the text and figures.

1. Whose duty is it to prepare financial statements? 2. What state-

ments are the most important? 3. Why is the balance sheet referred to

as “a snapshot” of a company’s financial position? 4. Why is this state-

ment called ‘a balance’? 5. How often is the balance sheet commonly

prepared? 6. Study Figure 1 and say: 6.1. What are the main sections on

a balance sheet? 6.2. What do current assets include? 6.3. What entries

are listed under “intangible assets”? 6.4. What belongs to “current li-

abilities”? 7. Why is the income statement known as “a movie”? 8. What

indicators are summarized in the income statement? 9. Examine Figure

2 and say: 9.1.What do operating expenses include? 9.2. What did total

selling expenses amount to? 9.3. What does the bottom line on this state-

ment show?

Text 4

1. Before you read the text discuss with your partner what you know

about auditing and try to guess why this activity is named “auditing”.

2. Read the text and check if your guess was correct.

Auditing

Auditing is a very ancient activity. “Audit” is a Latin word that meant

“he hears”. In ancient times auditing was the process whereby the owner

heard the account given by his steward of the use of the owner’s resources.

The origin of stewardship goes far back into the Middle Ages. It was

the original purpose of accounting and was also called ‘accountability’.

Kings or lords who were away at war or for other purposes usually left

their estates in the hands of a steward. The steward kept record of pay-

ments and receipts and rendered an account to the owner, who might be

illiterate and had to hear it.

In the early days of auditing the prime qualifications for the position

of an auditor was reputation. A man known for his integrity and inde-

pendence of mind took this honoured position, the matter of technical

ability being entirely secondary. In those days, the function of auditor was

never confused with that of accountant. However, as accounting gradu-

ally became more complex, auditors became increasingly dependent on

the expertise provided by accountants. Eventually, the audit function

itself became totally dominated by the accountancy profession. By the

19th century, many owners of businesses appointed one of their members

to be an auditor of the financial statements prepared by the directors of

a company. This was partly because the process of auditing had become

more complicated as business itself became more complicated.

212

In its modern sense, an audit is a process (carried out by suitable

qualified auditors) whereby the accounts of business entities including

limited companies, trusts, etc., are subjected to scrutiny in such detail

as will enable the auditors to form an opinion to their truth and fairness.

To put it differently, its main aim is to give an opinion on whether the

financial statements drawn up by the directors of a company give a fair

presentation. This opinion is then embodied in an “audit report”. In or-

der to do this, an auditor needs to check the physical existence of inter-

nal control to ensure that transactions are likely to have been recorded

correctly. If internal control is poor, he will ask for it to be improved and

he will increase the amount of checking done on sample transactions. If

the control systems look good, relatively small samples of various types

of transactions may be checked.

Auditors would generally be expected to circularize a sample of the

debtors to confirm that they exist. He would normally attend the count

of the inventory. The rules for auditing are usually set out in auditing

standards.

The qualifications that auditors must have are set down: membership

of a CPA body in the US, or in the UK membership of one of four of the

bodies of the consultative committee of the accountancy bodies. Audit-

ing is carried out by individuals or forms which vary greatly in size. Some

firms have hundreds of partners and thousands of stuff.

3. Read the text again and draw up an outline of it by identifying key

sentences in each paragraph.

4. Describe the main aim of auditing.

5. Give a list of the main functions of auditors.

6. What qualifications are auditors required to have in the USA?

7. What do you know about auditing profession in the Republic of Belarus?

Text 5

1. Before you read the text, brainstorm the following issues in small groups:

– Why do the issues of business ethics draw so much attention nowa-

days?

– What can organizations do to enhance ethical behaviour?

Then read the text and compare your ideas with those of the author.

Ethics in Business and Accounting

Business and accounting exist in an environment in which many is-

sues and events cannot be interpreted as absolutely right or wrong. Every

decision or choice has pros and cons, costs and benefits, and people or

213

institutions who will be affected positively or negatively by the decision.

In a setting where many issues and events fall between the extremes of

right and wrong, it is very important that accountants and business-

people maintain high ethical standards. Several groups have established

codes of ethics that address ethical behavior to help accountants and

their business associates work their way through the complicated ethical

issues associated with business issues and events. These groups include

the American Institute of Certified Public Accountants (AICPA), the

Institute of Management Accountants (IMA), the International Fed-

eration of Accountants (IFAS), and most large companies.

Members of the AICPA adopted a code of professional conduct

that guides them in their professional work. It addresses such issues as

self-discipline, honorable behavior, moral judgments, the pubic inter-

est, professionalism, integrity, and technical and ethical standards. The

IMA has a code of conduct that is similar to the AICPA’s code. It ad-

dresses competence, confidentiality, integrity, and resolution of ethical

conflict.

The IFAS is an independent, worldwide organization. Its stated pur-

pose is to “develop and enhance a coordinated worldwide accountancy

profession with harmonized standards.” As part of its efforts, it has de-

veloped a code of ethics for accountants in each country to use as the

basis for founding their own codes of ethics. Because of the wide cul-

tural, language, legal, and social diversity of the nations of the world, the

IFAS expects professional accountants in each country to add their own

national ethical standards in the code to reflect their national differences

or even to delete some items of the code at their national level. The code

addresses objectivity, resolution of ethical conflicts, professional compe-

tence, confidentiality, tax practice, cross-border activities, and publicity.

It also addresses independence, fees and commissions, activities incom-

patible with the practice of accountancy, clients’ money, relations with

other professional accountants, and advertising and solicitation.

2. Read the text again and answer the following questions:

– What professional accounting organizations are mentioned in the

text?

– What have these organizations done in terms of professional ethics?

– What major issues do accountants’ codes of ethics address?

3. In each paragraph of the text find the key topic sentences that carry

the main load of logic and a few of those that are closely related to them. On

this basis prepare a summary of the text consisting of 5–7 sentences.

4. Find in Supplementary Reading the excerpts from AICPA Code of

Professional Conduct and render their main idea in Russian.

214

Text 6

1. Before you read the article below, exchange information with your

partners on the following question:

 Have you heard anything about the scandal associated with the

American energy giant Enron or any other business scandals in the

United States or Europe involving accounting?

2. Read the text and learn about recent developments in the accounting

profession in the USA.

Accounting Scandals

Corporate accounting scandals are political and business scandals

which arise with the disclosure of misdeeds by trusted executives of large

public corporations. Such misdeeds typically involve complex methods

for misusing or misdirecting funds, overstating revenues, understating

expenses, overstating the value of corporate assets or underreporting the

existence of liabilities. In public companies, this type of “creative ac-

counting” can amount to fraud and investigations are typically launched

by government oversight agencies, such as the Securities and Exchange

Commission (SEC) in the United States.

In 2002, a wave of separate but often related accounting scandals be-

came known to the public in the U.S. Several leading public accounting

firms− Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG,

PricewaterhouseCoopers, and others− have admitted to or have been

charged with negligence in the execution of their duty as auditors to

identify and prevent the publication of falsified financial reports by their

corporate clients which had the effect of giving a misleading impression

of their client companies' financial status. In several cases, the monetary

amounts of the fraud involved are in the billions of dollars.

3. Scan the text again and find the English equivalents of the following

Russian collocations.

Разоблачение преступлений; злоупотребление денежными фон-

дами; завышать доходы; занижать расходы; занижение сведений

об обязательствах; манипуляции с бухгалтерской отчетностью; мо-

шенничество; начать расследование; надзорный орган; предъяв-

лять обвинение в халатности; давать искаженное представление;

финансовое положение.

4. Work with a partner. Put the events in Enron’s history into the correct

order. Start with D.

The Rise and Fall of Enron

A. Ken Lay, boss of Houston Natural Gas, was immediately appointed

CEO of the newly-formed company.

215

В. When it didn’t receive answers, the regulator launched a formal

investigation into Enron’s investments. As a result, Enron’s Chief Fi-

nancial Officer resigned.

С. During the 1990’s Enron continued to expand and diversify at an

incredible rate, it invested $2 billion in a power plant in India, bought a

water company in the UK and acquired an electricity company in Port-

land, Oregon.

D. Enron was founded in 1985 when two gas companies, Houston

Natural Gas and InterNorth, merged to create the first national natural

gas pipe network.

E. Finally, the company was declared bankrupt, but the directors had

already sold their shares and walked away with the profits.

F. Three years after its creation, Enron opened its first offices abroad

as part of a strategy to take advantage of newly-privatized markets.

G. By the end of 2000, annual revenues had reached $100 billion,

making Enron the sixth-largest energy company in the world. Most of

this was from trading activities.

H. However, Enron was not satisfied with revenue just from gas trad-

ing, so it also moved into electricity trading, establishing a trading centre

in London. This became the company’s most profitable activity.

I. The first evidence of false accounting came in the first few months

of 2001 when Enron admitted it had lost $570 million. Its share price

fell, causing a cash and credit crisis.

J. In July, the regulator started asking Enron to give more details

about its financial performance.

K. At the same time as opening offices overseas, Enron began trading

natural gas in North America.

L. By the turn of the century, a highly competitive work culture had

developed. Each year 15% of Enron’s employees were sacked and re-

placed with younger, ambitious graduates.

M. The investigation found that the company and its accountants

had lied to its shareholders and employees about $2 billion of debt.

5. Give a brief account of the rise and fall of Enron: explain the reasons

for its fall.

Language

1. Practise reading the following international words, give their Russian

equivalents.

standard, privatized, audit, auditor, scandal, ambitious, client, balan-

ce, total, transaction, certified, licensed, potential, execute, execution,

control, controller, record v, keep records.

216

2. Practise saying the numbers from Figure 1 and 2.

3. Read the following numbers and expressions in English.

0.4 2.5 3.6 0.5 4.867

7/8 2/5

¼

27/38 3/10

305 4,057 25,478 1,946 925,046,305

5 7 = 35 249 35 = 8,715

15 : 3 = 5 756 : 6 = 126

16 – 10 = 6 7056 – 250 = 6806

Assets = Liabilities + Owner’s Equity

4. Complete the sentences by forming adjectives from the verbs on the

right according to the given pattern, work out the Russian equivalents of the

derivatives obtained.

v + -able→ a 'that can be v-ed', e.g.

manage + -able→ manageable 'that can be managed' – 1) поддаю-

щийся управлению, легко управляемый; 2) выполнимый, осущес-

твимый

market-able securities = 'that can be easily marketed (sold)' – ры-

ночные (легкореализуемые) ценные бумаги

1. The page had so many corrections and comments that

the original text was virtually un……. .

2. The proposals must be …… to the shareholders.

3. The new bank building is the most …… structure in the

city.

4. This section of law is only …… to businesses.

5. Her help made an …… difference.

6. A good manager must be able to adjust easily to ……

environment.

7. A large international meeting was held with the aim of

promoting ……development in all countries.

8. This is a highly …… product.

9. The recent tax reforms have made government more

…… for its spending.

read

accept

recognize

apply

appreciate

change

sustain

market

account

10. A cheque that is not …… cannot be exchanged for cash negotiate

and must be paid into a bank account.

11. The price of the car is …… in 12 monthly installments. pay

12. Accounts …… are classed as current assets on a balance

sheet.

13. Accounts …… are the amounts owed by a business to

suppliers.

14. The two of them are in …… financial situation.

receive

pay

compare

21

7

5. Add an appropriate negative prefix to italicized words, choose from

the list given.

ir- un- in- dis- ab- under- mis- de-

1. Low demand for their products has made production very …profi-

table. 2. You must make everything clear now in order to avoid any

…understandings later. 3. Four Seasons Ltd have been ... successful in

marketing the new product. 4. The report showed that moving the pro-

duction to a new site was …desirable. 5. We don’t have a detailed cost

analysis yet, so the management are …decided about future investment.

6. The management think that the policy of expanding sales is …correct.

7. Since …regulation, telephone companies have been able to set their

own prices. 8. They …estimated the effect of the competitor’s products

on sale in this market sector. 9. Lots of the documentation which was

lost in the fire is …replaceable. 10. Prices for raw materials are …normally

high at the moment. 11. They have decided to …continue the production

of Product P because sales have fallen. 12. They were accused of …using

their power to keep prices artificially high. 13. He was accused of …ap-

propriating $30,000.

6. Make word partnerships and use them in the sentences of your own.

1. supply

2. keep

3. evaluate

4. overstate

5. prepare

6. adhere to

7. audit

8. make

9. cook

a. performance

b. a balance sheet

c. accounting reports

d. books

e. information

f. standards

g. records

h. decisions

i. revenues

7. Identify which term of those on the right describes each mathematical

expression.

1. 75% a. formula

2. E = mc2

b. multiplication

3. c. division

000’s 000’s

Jan

Feb

Mar

April

May

2.4

2.3

3.9

4.6

3.4

July 3.5

Aug 4.7

Sept 6.9

Oct 6.3

Nov 6.8

e. addition

f. ratio

g. rate

h. subtraction

June

Monthly

3.6

Dec

=

3.4

4.33

i. percentage

21

8

d. average

4. 1,623 + 3,004 = 4,627

5. 9,260 – 1,111 = 8,149

6. 87 25 = 2175

7. 1,505 = 301

5

8. Direct costs 724

Indirect costs 200

Costs

Direct : Indirect = 3.62

9. $12,24/hour

8. Match the words on the left to the right definitions, then use them to

complete the sentences that follow.

1. Accountancy a. record of money received and spent

2. Accounting

3. Account

4. Accountant

b. theory of keeping financial records

c. a person who keeps and works with financial records.

d. activity of keeping financial records

1. He’s at university studying ______. 2. A bookkeeper writes de-

tails of financial transaction in the ______. 3. A business manager

needs some ______ knowledge in order to understand what he reads in

the company’s ______. 4. Most people in the profession read ______

magazines and journals to stay informed. 5. The chief ______ has com-

pleted the draft ______ for the year. 6. Can you check that the figures

have been entered correctly in the bank ______? 7. The directors of the

company approve the ______ at the end of the ______ year. 8. Each

branch maintains its own full _____ system. 9. The management of the

company have not yet decided on their _____ policies. 10. He’s been

working as an ______ with this firm for several years now.

9. Identify the meanings of the ‘account’ phrases in bold in the sentences

below and give their Russian equivalents. Choose the correct definition from

the list on the right.

1. How do you account for the sudden fall in the

stock value?

2. Agents buy and sell goods on their own account.

3. They gave the solicitor a detailed account of the

customer’s business deals in the last year.

4. The draft accounts had to be adjusted on account of

the discovery that a major debtor had gone bankrupt.

5. Raw materials account for 30% of the manufactu-

ring cost.

6. They are regular customers in this shop and are

now able to buy on account.

a. people say

b. report

c. under no

circumstances

d. consider

e. explain

f. big customers

g. for themselves

h. because of

i. on credit

j. represent

21

9

7. On no account should these figures be released

before the board meeting.

8. When making decision for the future the ma-

nagers have to take this year’s poor performance into

account.

9. By all accounts, they will benefit greatly if the deal

goes through.

10. The advertising company has won two new ac-

counts in South Africa

10.* Translate the following sentences into English using ‘account’ phra-

ses from Activity 9.

1. Эти товары были приобретены в кредит. 2. Вы должны пред-

ставить нам детальный отчет о Ваших расходах за данный период.

3. По общему мнению, к концу года произойдет слияние этих двух

компаний. 4. Ни в коем случае нельзя прекращать работу пред-

приятия. 5. При принятии решений менеджеры должны учитывать

информацию, предоставляемую бухгалтерами. 6. Оплата за отопле-

ние составила 30% накладных расходов. 7. Мы должны скоррек-

тировать бюджет из-за происшедших изменений на рынке. 8. Моя

функция – искать новых заказчиков. 9. Ему приходится покупать

канцелярские принадлежности за свой счет. 10. Как можно объяс-

нить рост дефицита федерального бюджета в США в начале 90-х

годов?

11. Identify accounting terms defined on the left, some prompts are given.

1. all objects, tangible or intangible, that are of

value to its possessor, such as buildings, ma-

chinery, money in the bank, money owed by

customers, etc.

2. a financial plan for the future

3. the loss of value of the things that have been

consumed

4. a statement of the financial position of the

company

5. official books for keeping accounts

6. goods which are bought by the company

a_ _ _ _ s

b_ _ _ _ t

d_ _ _ _ _ _ _ _ _ _n

b_ _ _ _ _ e s_ _ _ t

l_ _ _ _ _ s

p_ _ _ _ _ _ _ s

7. goods which the company has available to sell s_ _ _ k

8. customers who have received goods but not

paid for them yet

220

d_ _ _ _ _

s

9. the company that has supplied goods but has

not received any money for them yet c _ _ _ _ _ _ r

10. companies make this when they sell their

goods for more than it costs them to make them p_ _ _ _ t

11. money which is borrowed l _ _ n

12. an official examination of accounts

a_ _ _ t

12. Match the English accounting terms to their Russian equivalents.

a. accounts receivable (US), or

debtors (GB)

b. liabilities

c. profit and loss account

d. stock taking

e. income statement

f. double entry bookkeeping

g. ledger

h. inventory

i. balance sheet

j. accounts payable (US) or credi-

tors (GB)

k. intangible assets

l. cash flow

m. accounting transaction

1. инвентаризация, переучет

2. дебиторская задолженность,

счета дебиторов

3. отчет о доходах и расходах

4. баланс, балансовый отчет

5. материально-производствен-

ные запасы, наличные товары

6. кредиторская задолженность,

счета к оплате, счета кредиторов

7. задолженность, обязательства,

пассивы

8. нематериальные активы

9. движение денежной налич-

ности

10. проводка

11. система двойной записи

12. главная книга, гроссбух

13. счет прибылей и убытков

13.* Render the following Russian text into English, use some of the ac-

tive vocabulary from activity 12:

Согласно международным бухгалтерским стандартам (МБС),

финансовая отчетность охватывает балансы, отчеты о доходах

(счета прибылей и убытков), отчет о движении денежных средств

и другие материалы. Обычно финансовые отчеты готовятся или

публикуются один раз в год и являются объектом аудиторского за-

ключения.

Баланс предприятия отражает финансовое положение пред-

приятия на определенную дату. В соответствии с МБС баланс

раскрывает содержание трех важнейших категорий: актива, обя-

зательств и капитала. Активы, характеризующие хозяйственные

средства предприятия, представлены в активе баланса, а обяза-

тельства, а также собственный капитал фиксируется в пассиве ба-

22

1

ланса. Несмотря на то, что во всех странах баланс принципиально

понимается одинаково, расположение его статей отличается мно-

гообразием.

Отчет о доходах, или отчет о прибыли, представляет собой опи-

сание отдельных обстоятельств, которые обусловили тот или иной

результат деятельности предприятия за определенный период.

В некоторых странах, например, в США, придается большое

значение отчету о движении денежных средств.

14. During a job interview Alan is talking about his previous jobs. Com-

plete what he says with the best form of the verb in brackets. Choose between

past simple, past continuous or past perfect, the first has been done for you.

INTERVIEWER: So, Alan, why did you quit your last job?

ALAN: Well at the time I (1) was working (work) as a financial officer

for an International Accountancy firm in London. I (2) ………. (be) in

the same company for three years.

INTERVIEWER: How (3) ……… (you/get) the job?

ALAN: Just after I (4) ……… (finish) university I (5) ………. (go) to a

job fair. I still (6) ……… (decide) what I wanted to do and I was interested

to see what kind of jobs there (7) ……… (be) at the fair. While I (8) ……….

(look) at information on one of the stands for a large international ac-

countancy firm, someone (9) ………. (give) me an application form to

fill in. I thought this might be a good career opportunity for me as I

(10) ………. (already/take) some accountancy exams for my degree. So

I (11) ……… (complete) the form and (12) ………(send) it off. They (13)

………. (interview) me the following week and I got job. At first, I (14)

……… (feel) satisfied with the job, but as time went by, things (15) ……….

(change) and I began to hate working there.

INTERVIEWER: So what (16) ……… (go) wrong?

ALAN: Well the situation was this: I (17) ……… (work) for a person

who was very difficult, er …very demanding … never satisfied. What’s

more, my job (18) ………. (become) too repetitive and really wanted to

do something more creative. So, that’s why I resigned … I (19) ……….

(not have) another job to go to, but I knew I (20) ………. (have) to make

a change.

15. Study the figures in the table describing the changes in three oil com-

panies’ performance and then complete the presentation extract analyzing

these changes with phrases of comparison given below; the first has been

done for you.