Text 5 relationships between financial statements

Exercise 5.1

Study the vocabulary:

1	assess	1	оцінювати
2	alternative	2	альтернатива
3	claims	3	вимоги
4	to cover the periods of time	4	охоплювати періоди часу
5	to deal with	5	мати справу з чим-небудь або ким-небудь
6	essential	6	істотний
7	reporting	7	звітність
8	efforts	8	зусилля
9	to be closely interrelated	9	бути тісно взаємозв'язаним
10	Their importance leis in the fact that	10	Їх важливість полягає у тому, що
11	last but not least	11	останнє, але не менш важливе
12	objective	12	мета
13	to provide	13	надавати
14	to present different views on smth	14	представляти різні думки про ... щось
15	purpose	15	мета
	performance		робота
	to regard		розглядати

Exercise 5.2

Read and translate the text:

As it is known, financial reporting has several objectives. First of all the financial statements should provide useful information for making investments and credit decisions. Second, information provided should also be useful in assessing cash flow prospects. And last but not least, all the financial statements should provide information about the sources of the business, claims to those resources and changes in them.

There are three main financial statements: the balance sheet, the income statement, and the cash flow statement. They are all closely interrelated and based on the same underlying transactions information. At the same time they present different views of business activity.

It should be said, that the balance sheet, the income statement and the cash flow statement cannot be regarded as alternatives to each pother. They are all rather important in terms of presenting key financial formation about the business. For example, the balance sheet is generally prepared at the beginning and ending points in time. It gives a static look in financial terms where the business stands.

Unlike the balance sheet, both the income statement and the cash flow statement cover the period of time between the two balance sheets. And their importance lies in the fact that they help explain essential changes that take place during this period.

Thus, it is right to say, that all financial statements are closely tied to time periods. But each of them relates to the period of time it covers in a different way. Two of the statements - the income statement and the cash flow statement - deal with the activities of the business over time. One statement - the balance sheet - shows the state of the business at a particular point in time.

All three financial statements contain important information. At the same time each of them includes different information and so has a different purpose. For example, the balance sheet provides information about assets, liabilities and owner's equity. In other words, it shows what the business looks like at a specific date. The income statement explains changes in the financial position - of the business that result from its transactions. The cash flow statement explains the ways cash increased and decreased during the business performance. In a word, all the financial statements sum up in a meaningful and useful way the financial results of a business. However, it should be mentioned that they are not perfect pictures of the real things but the accountant's best efforts to represent what is real.

Exercise 5.3

Read the text again and choose the best variant:

1. It is well-known that financial reporting…

1. has many objectives

2. has several objectives

3. has the only objective

2. The financial statements should provide…

1. useful information for making investments and credit decisions

2. financial statements shouldn’t provide any financial transaction

3. useful information for making investments and credit decisions, should provide information about the sources of the business and these information must be useful in assessing cash flow prospects

3. The main financial statements…

1. expanditures

2. the balance sheet

3. the cash flow statement, the income statement, the balance sheet

4. The financial statement are…

1. rather important in presenting key financial formation about the business

2. not so important in business

5. All financial statements contain …

1. unimportant information about business activity

2. important information about business activity

Exercise 5.4

Fill in the gaps from the table. Then read and translate:

important claims investments alternatives flow views assessing transactions objectives cash

As it is known, financial reporting has several …1…. First of all the financial statements should provide useful information for making …2…and credit decisions. Second, information provided should also be useful in …3…cash flow prospects. And last but not least, all the financial statements should provide information about the sources of the business, …4… to those resources and changes in them.

There are three main financial statements: the balance sheet, the income statement, and the …5……6…statement. They are all closely interrelated and based on the same underlying …7…information. At the same time they present different …8…of business activity.

It should be said, that the balance sheet, the income statement and the cash flow statement cannot be regarded as …9…to each pother. They are all rather …10…in terms of presenting key financial formation about the business.

Exercise 5.5

Read the whole text again and choose the best answer:

1. How many financial statements are there?

1. four

2. three

3. two

2. Are they closely interrelated?

1. no, they are not

2. yes, they are

3. When is the balance sheet prepared?

1. at the ending points in time

2. in the middle points in time

3. at the beginning and ending points in time

4. Did all financial statement closely tie?

1. yes, they did

2. no, they didn’t

5. Why the financial statements are closely interrelated?

1. they are based o the same underlying transaction information

2. they are all rather important in terms of presenting key financial formation about the business

6. What sort of look does the balance sheet give?

1. a static look in financial terms where the business stands

2. a non-static look in financial terms where the business stands