Text 7 accounting communication through financial statements

Exercise 7.1

Study the vocabulary:

1	a feature	1	особливість, характерна риса
2	the required information	2	потрібна інформація
3	to consider	3	обговорювати, обдумувати, приймати до уваги
4	achieved or failed to achieve its objective of earning an acceptable income	4	досяг чи не мав успіху у досягненні своєї мети отримання допустимого прибутку
5	major deficiency	5	головний недолік
6	the accounting period	6	звітний період; фінансовий рік
7	cash movements	7	обіг готівки
8	head	8	тут заголовок
9	to be headed in a similar way	9	мати подібні заголовки
10	note	10	тут банкнота
11	bonds	11	облігації
12	to receive interest	12	отримати прибуток (відсоток)

Exercise 7.2

Read and translate the text:

Financial statements are a central feature of accounting because they are the primary means of communicating important accounting information to users. It is helpful to think of these statements as a model of the business enterprise. As is true of all models, however, financial statements are not perfect pictures of the real things but the accountant's best effort to represent what is real. Three major financial statements are used to communicate the required information about the business. Each of them deals with a particular aspect of financial conditions.

The first financial statement usually prepared is the income statement or profit and loss account. As a rule, it shows a firm's revenue, generated over a period and all the relevant costs incurred in this period. In other words, it summarizes the amount of revenues earned and expenses incurred over a period of time. Many people consider it to be the most important financial report because its purpose is to measure whether the business achieved or failed to achieve its objective of earning an acceptable income. But it has become clear recently that the income statement has one major deficiency. It only shows the changes in financial position caused by those operations that produced an income or loss. Many important events, especially those relating to investment and financing activities can take place during the accounting period and not appear on the income statement.

The second financial statement is, certainly, the balance sheet. The purpose of the balance sheet is to show the financial position of a business at a particular date. For this reason, it is often called the statement of financial position and is dated as of a certain date. The third financial statement is the cash flow statement. It shows a company's sources and uses of cash during an accounting period. This statement is useful in giving an indication of cash movements during a period and the cash balance at the end of the period.

It should be noted that each statement is headed in a similar way. Each identifies the company and the kind of statement for the user. Users of financial statements fall into two broad categories: internal and external. Management is the main internal user while creditors and investors are external users. Creditors make loans in the form of trade accounts, notes, or bonds, on which they receive interest. Investors buy capital stock, from which they hope to receive dividends and an increase in value. All the users are interested in receiving reliable formation from the financial statements to make decisions.

Exercise 7.3

Read the text again and choose the best variant:

1. Financial statements are a central feature of accounting because they are [the primary means of communicating important accounting information to users].

a) the primary means of communicating important accounting information to users.

b) the most important means of accounting information to consumers.

c) the central resources of accounting information to managers.

2. Financial statements are [the accountant's best effort to represent the real situation].

a) perfect pictures of the real things;

b) the accountant's best effort to represent the real situation;

c) the accountant's effort to characterize the unreal pictures of the actual things

3. The first financial statement usually shows [the summary of the amount of revenues earned and expenses incurred by a firm over a period of time].

a) a firm's profit, generated over a period and all the most important costs earned in this period.

b) a firm's income, produced in time and all the relevant costs incurred in this period.

c) the summary of the amount of revenues earned and expenses incurred by a firm over a period of time.

4. The purpose of the balance sheet is [to show the financial position of a business at a particular date].

a) to show the financial situation of a business in a particular date;

b) to show the financial position of a business at a particular date;

c) to show the fiscal point of a business at a particular day

5. The cash flow statement shows [a company's sources and cash movements during an accounting period].

a) a company's sources and uses of foreign currency during an accounting period;

b) a company's sources and cash movements during an accounting period;

c) a company's sources and expenditures during an accounting period

Exercise 7.4

Read the last paragraph of the text again and fill in the gaps. Then read and translate:

company; decisions; statement; interest; reliable; dividends; loans; user; internal; creditors;

It should be noted that each…1…is headed in a similar way. Each identifies the…2…and the kind of statement for the ...3…. Users of financial statements fall into two broad categories: …4… and external. Management is the main internal user while …5… and investors are external users. Creditors make …6…in the form of trade accounts, notes, or bonds, on which they receive …7…. Investors buy capital stock, from which they hope to receive …8… and an increase in value. All the users are interested in receiving …9… formation from the financial statements to make…10….

Exercise 7.5

Read the whole text again and choose the best answer:

1. Which financial statement shows the financial position of a business at a particular date?

a) the balance sheet

b) cash flow statement

c) the income statement

2. Why do many people consider the income statement to be the most important financial report?

a) because it measures an income of a business;

b) because its purpose is to measure whether the business completed earning earning an acceptable profit;

c) because its purpose is to see the size of the acceptable income of a business;

3. Why do you think the income statement have the deficiency?

a) because all unimportant events can appear on the income statement;

b) because it only shows the changes in financial position caused by those operations that produced an income or loss;

c) because all investment and financing activities can’t take place during the accounting period;

4. What is the purpose of balance sheet?

a) The purpose of the balance sheet is to show the financial problems of a business.

b) The purpose of the balance sheet is to show the economic position of a company at a particular time.

c) The purpose of the balance sheet is to show the financial position of a business at a particular date.

5. Which financial statement shows a company's sources and uses of cash during an accounting period?

a) the balance sheet

b) the income statement

c) the cash movement.