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 provide a means of recording, reporting,
summarizing, and interpreting economic data.
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?
Ratio analysis is one of the main tools used to
analyze accounting records.
B.
Choose the
correct word available to complete the following sentences.
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 (Recorded) 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 (Stocks)
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 (Debitors)
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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