UNIT TWO
READING
INTRODUCING
ACCOUNTING
Accounting
provides a financial picture a business firm. An accounting department records
measures the activity of a business and reports on the effects of these
transactions on the firm’s financial condition. Accounting records and reports
provided data that are used by management, stockholders, creditors, independent
analysts, banks and government.
The
income statement and balance sheet are the two types of records that most
business prepare regularly. By reading these statement, once can identify how
money was received and spent by a company. By analyzing these records, one can
determine whether or not the activities of the company have been good for it.
One
major tool for the analysts of accounting records is ration analysis. A ration
analysis is the relationship of two figures. There three main categories of
ration in finance. One such ratio deals with profitability. The main example of
this is the Return on Investment Ration, which is the most widely used single
measure of a firm’s operating efficiency.
A
second set of rations helps a company evaluate its current financial position.
These rations deal with assets and liabilities. A third set of rations deans
with the overall financial structure of the company, primarily analyzing the
values of the ownership of the firm.
A. Answer the following questions
1. In general terms, what is the purpose
of accounting?
The purpose of accounting is to records measures the activity of a business and
reports on the effects of these transactions on the firm’s financial condition.
2. Who uses the data which is provided by
accounting records?
Accounting records
and reports provided data that are used by management, stockholders, creditors,
independent analysts, banks and government.
3. What are the two types of record that
are prepared by most business?
The income statement
and balance sheet
4. What can one learn by analyzing the
income statement and balance sheet of a company?
By reading these
statement, once can identify how money was received and spent by a company. By
analyzing these records, one can determine whether or not the activities of the
company have been good for it.
5. What is ratio analysis used for?
It is used for
evaluating a company’s current financial position.
B. Choose the correct word available to complete
the following sentences.
· Record (N)
· Record (V)
· Report (N)
· Report (V)
· Profit (N)
· Profit (V)
1. Accounting is needed to (Record) all business transactions
2. He keeps very neat (Report)
3. Our firm’s current (Profit) are very high
4. They (Report) from their association with
that company
5. Our (Record) of accountant receivable
show that $5.000 is owed to us
6. The activity is (Record) on income statements and
balance sheets
7. Secretary had finished typing the (Report) before the manager arrived
at the office
8. How much does the company make (Profit) this year?
Dialogue
Accounting
(David and Mary both work in a large company. They are mow having lunch
in the company cafeteria)
David : I’m glad you could meet me
for lunch. You looked so busy this morning. Surrounded by so many statements
and your calculator, of course.
Mary : Of course! My calculator
is my right hand!
David : I never noticed
Mary : seriously, David. You
know, the accounting department is very busy
David : I know, we’re all busy,
totaling accounts. But I’ve already turned on the report on my department
Mary : Then I guess my
department should receive your statement soon
David : You already have it
Mary : Good
David : So, how is business?
Mary : How would I know? I only
work on some records and statements. I don’t have the whole picture. I’m not
the auditor. But I guess the company’s doing well
David : I certainly hope so. We
have to keep the investors happy, creditors, labor union and really, every one
Mary : Well, the balance sheet
and profit and loss statement for this fiscal year should be ready soon. So any
one can check out of the company in the financial statements
David : Speaking of finances, are
you the one who works on the paychecks?
Mary : Why do you ask about it?
David : I thought you might
explain to me the difference between my gross day and my net take-home pay?
Mary : The explanation takes one
word, taxes. Actually. The salaries are gone through the computer
David : Really?
Mary : Sure. How could we handle
any volume in a large company, billings, sales, salaries, without computer?
David : You’re right. Mary, you
can credit my account and day
Mary : David, don’t be dilly.
Let’s get some dessert
C. Complete the following words
1. This is the name for buildings
machinery, money in the bank and money owned by customers (Assets)
2. The loss of value of the things in
number one. (1) (Depreciation)
3. Money which is borrowed (Loan)
4. The extra money a company or person
pays for borrowing money (Interest)
5. The total sum of money which is
supplied by the owners of a company to set it up (Capital)
6. Cash or goods which the owner takes
from the company for his own private use (drawings)
7. These are bought by people wishing to
invest in the company (Shares)
8. The extra amount which is paid for a
company above the value of its assets (Goodwill)
9. The purchase of another company (Acquisition)
10. An official examination of the accounts (Audit)
11. A financial plan for the future (Budget)
12. A statement of the financial position the company (Balance
sheet)
13. The official books for keeping accounts (Ledgers)
14. A reduction in the price which is offered to customers (Discount)
15. This company has supplied goods but has not received any money
for them yet (Creditor)
16. Goods which has the company has available to sell (Stock)
17. Customers who have received goods but not paid for them yet (Debtors)
18. This is the name of the difference between the credit and
debit side of a account (Balance)
19. Companies make this when they sell their goods for more than
it costs (Profit)
20. Companies make this when they sell their goods for less than
it costs (Loss)
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