Revision exercises

Ex. 19. Дайте развёрнутые ответы на вопросы.

1. What documents are financial statements based on?

2. What does the balance sheet show?

3. What information does the income statement have?

4. What changes are reflected in the statement of changes in shareholders’ equity?

5. What business activities provide cash flow?

6. What is the importance of footnotes?

7. What is the idea of the accounting period?

8. What is the purpose of the interim statements?

9. What is the importance of accepted accounting standards?

10. What groups of people are interested in financial statements?

Ex. 20. а) Прочитайте текст и переведите его.

Remember: to conform to smth [kǝn`fᴐ:m] соответствовать чему-л.

to meet the requirements [ri`kwaiǝmǝnts] удовлетворять требованиям

true and fair representation точное и беспристрастное представление

The heart of an annual report is the financial statement which must conform to accounting and reporting standards established by the Financial Accounting Standards Board (FASB)¹⁵, the Securities and Exchange Commission (SEC)¹⁶ and various committees of the American Institute of Certified Public Accountants (AICPA)¹⁷. Because financial statements are very structured, they do not meet the requirements of any one group, and each group of users will not find information of interest. But because of the high degree of structure and accepted accounting principles, users of financial statements can be sure that the information they receive adheres to the principle of true and fair representation; they can review the financial statement of a company in New York or California and decide to buy stock, lend money, or in some other way become involved with the company, only on the basis of its audited financial statements.

Financial statements provide the substance of the annual report. At a minimum, they consist of a balance sheet, income statement, statement of cash flows, and the accompanying notes and auditor’s opinion.

б) Ответьте на вопросы.

1. What is the function of the financial statements?

2. What agencies make the rules of accounting and reporting standards?

3. For what users are the financial statements intended?

4. What is the major principle of any financial statements?

5. What decisions are taken on the basis of financial statements?

6. What minimum requirements are the financial statements to meet?

Ex. 21. Ответьте на вопросы.

1. What role do the regulatory agencies play in the matter of x. meet? um requirements are the f g and reporting standards? tatement of cash flows, and the accompanying notes and auditor'on financial statements?

2. What is the importance of structure?

3. What is the importance of the principle of true and fair representation?

Ex.22. Заполните пропуски словами из рамки.

Statement of Cash Flows

investing, decisions, flows, transactions, selling

The statement of cash ___ examines the changes in cash resulting from business activities. Cash flow analysis is necessary to make proper investing as well as to maintain operations.

Cash flows are separated by business activity. They are the following: operating, ___ and financing.

Operating activities include receipts from customers, payments to employees and suppliers, any other cash flows from ___ not classified as investing or financing.

Investing activities include making loans, buying and ___ of fixed assets.

Financing activities cover borrowing and repaying money, making ___ on issue of shares or paying dividends.

Ex.23. Заполните пропуски предлогами, где необходимо.

1. In the USA foreign companies have to prepare their financial statements ___ conformity with the generally accepted accounting principles.

2. The lawyers provide the managers ___ legal advice and services.

3. The budget provides ___ a salary increase next year.

4. Transactions which involve ___ assets, liabilities and capital are used in the preparation ___ financial statements.

5. Companies are interested ___ their financial strength.

6. Their situation is similar ___ ours.

7. Their revenue comes ___ different sources.

8. The company has spent a lot of money ___ supplies.

9. The balance sheet is a list of all the assets owned ___ a business and all the liabilities owed ___ a business ___ a particular moment.

10. The income statement reports the results ___ business activities ___ a period of time, typically a fiscal year.

11. Revenues show the inflow of new assets ___ the business ___ the earnings process. Expenses show the outflow ___ assets.

Ex.24. Заполните пропуски артиклями, где необходимо.

I.

Each income statement contains information unique to ___ company preparing it. Depending on ___ activities of ___ company, ___ income statement may contain ___ following sections: Sales and Operating Revenues, Cost of Goods Sold, Gross Profit, Operating Expenses, Other Revenues, Other Expenses.

The importance of ___ income statement is that it gives the reader ___ opportunity to see whether ___ activity was profitable during ___ year. It also gives ___ idea how cash flows are going into and out of ___company and thus gives an idea of whether or not ___ company has the resources to repay debts as well as to return cash to ___ owners.

II.

1. Every company wants to know where ___ revenue comes from.

2. ___ income statement reports ___ results of business activities for ___ period of time, typically ___ fiscal year.

3. Revenues show ___ inflow of new assets to ___ business.

4. Expenses show ___ outflow of assets from ___ business.

5. ___ statement of changes in shareholders’ equity analyzes ___ changes from year to year in ___ shareholders’ equity.

6. ___ statement of cash flows reports ___ net cash (inflows minus outflows) from ___ three principal business activities – operating, investing and financing.

7. This financial statements present ___ accounting information in ___ formal reports.

8. Transactions involving assets, liabilities and capital become ___data used in ___ preparation of ___ financial statements.

9. Financial statements are usually prepared once ___ year.

10. ___ accounting period may follow ___ calendar.

11. ___ interim statement is prepared for ___ period of time other than ___ fiscal or ___ calendar year.

12. Regardless of ___ periods of time covered by ___ individual financial statements, ___ information presented by them is ___ same.

Lesson 5

Texts: Text A: The Balance Sheet. The Horizontal Format.

Text B: The vertical format

Text A

The Balance Sheet. The Horizontal Format.

The balance sheet represents the financial picture as it stands on one particular day, for example, December 31, 2004. Typical Manufacturing Company`s balance sheet not only includes the most recent year, but also the previous year. It lets us compare how the company worked in its most recent years.

The balance sheet is divided into two sides: on the left are shown assets, on the right are shown liabilities and shareholders` equity. Both sides are always in balance.

In the assets column, accountants list all the goods and property owned as well as claims against others which are to be collected. The liabilities column contains all debts due to others.

There are two formats of the balance sheet – the traditional horizontal format and the vertical format. A company can prepare its balance sheet in either of the two formats. The traditional horizontal format is no longer used in the UK and the USA but it is still the basic pattern in some Far Eastern countries. This layout emphasizes the balance between assets and claims. It looks like the following.

Typical Manufacturing Company

Balance sheet as of December 31, 2004

Assets	2004	2003	Liabilities	2004	2003
Current assets			Liabilities and owners` equity
Cash and marketable securities	$ 355,000	$ 430,000	Accounts playable	$ 440,000	$ 430,000
Accounts receivable	$ 555,000	$ 512,000	Short-term debt	$ 409,000	$ 500,000
Inventory	$ 835,000	$ 755,000	Accrued expenses	$ 98,000	$ 98,000
Prepaid expenses	$ 123,000	$ 98,000
Total current assets	$ 1,868,000	$ 1,795,000	Income taxes payable	$ 17,000	$ 9,000
Fixed assets (property, Plant and Equipment)			Total Current liabilities	$ 964,000	$ 1,016,000
Land	$ 950,000	$ 950,000	Long-term debt	$ 750,000	$ 516,000
Buildings	$ 430,000	$ 420,000
Machinery	$ 251,000	$ 150,000
Total property, plant and equipment	$ 1,631,000	$ 1,520,000	Total liabilities	$ 1,714,000	$ 1,532,000
Less accumulated depreciation	$ 20,000	$ 18,000	Contributed capital	$ 850,000	$ 850,000
Net property, plant and equipment	$ 1,611,000	$ 1,502,000	Retained earnings	$ 935,000	$ 935,000
Intangibles (goodwill, patents) less amortization	$ 20,000	$ 20,000	Total owners` equity	$ 1,785,000	$ 1,785,000
Total assets	$ 3,499,000	$ 3,317,000	Total liabilities and owners` equity	$ 3,499,000	$ 3,317,000

The horizontal format emphasizes the idea that Assets = Liabilities + Equity.

Balance sheet data are most helpful when they are compared with information from the previous year. (See the Balance Sheet above)