UNIT FOUR – Accounting

UNIT 4 – Module I 75

UNIT FOUR

ACCOUNTING

OBJECTIVES: After studying this chapter you should be able to:

o be aware of the necessity of financial professional advice for company formation

o understand the difference between accounting and bookkeeping

o have a brief outline of the evolution of accounting

o become acquainted with the basic principles of accounting; the accounting cycle

o build up their accounting vocabulary

o know how to read and understand financial reports

o revise and practise reported speech

o distinguish and use words easily confused as well as British and American financial terms

MODULE I

LEAD-IN

& Read the following text and see if you can find answers to the above questions:

COMPANY FORMATION

A person starting a new business must decide which type of organization is best. To some extent theanswer depends on the person, the type of business, the money needed, and the kind of product or service tobe provided. If you are going into the restaurant business, you may decide on a sole proprietorship or apartnership. Perhaps you want to become a part-owner of a corporation by buying shares in it. You maywant to invest in a partnership by becoming a sleeping partner or you may want to look into franchise.

There are more sole proprietorships than any other types of business in the United State economicsystem, but it is the giant corporation, especially the multinational one, that has become to many a symbolof the private American enterprise system.

To money needed to start a business is called capital. If you do not have enough capital you mayborrow some from the bank in the form of a loan or an overdraft. Before the bank will give a loan you mustput up some security (such as your own house) in case you cannot pay back the money. Security is alsocalled collateral. Capital which is borrowed is called loan capital. Capital obtained from investors/investmentis called share capital or equity capital.

If the business owned by yourself (a sole proprietor) runs into trouble, you are liable to pay all thedebts to your creditors, even if you have to sell your private possessions. A sole proprietor is personallyliable to his/her creditors.

Sometimes two or more people own and run a business. This is called a partnership. People who investmoney in a business are called investors or backers. The backers in a partnership are all partners and owners.

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Usually all the partners have personal unlimited liability for debts to creditors. A partner who invests money ina partnership but who does not run the business is called a sleeping partner. Sometimes a sleeping partners canhave limited liability (her/his liability is limited to the amount of money s/he invests).

A company or a corporation is a business that is legally regarded as a separate entity, in other words as“something that exists independently”. That means that, as far as the law is concerned, the corporation has aseparate existence from the people who own it. It has a life of its own. As a consequence, owners in a corporationhave limited liability. With limited liability, the owners are responsible for the debts of the business only to theextent of the amount they have invested. Even if the business fails, the owners cannot lose more than they haveinvested. Their personal savings and possessions cannot be taken to pay the corporation’s debts. Limitedliability companies are economically very efficient. Although only about 6 percent of all business in the UnitedStates are corporations they earn about 79 percent of the country’s income.

Investment in a limited company is in the form of shares. Everyone who buys shares in the company isa shareholder. The liability of each share is limited to the amount of one’s investment. If you have shares in acompany, you have stake or holding in the company. If you hold 20% of the shares, you have a 20% stakes.If a shareholder has more than 50% holding, that person is a majority shareholder and has a majority orcontrolling interest in the company. A public limited company is normally the largest form of business unit inthe private sector; its share are often quoted on the stock exchange. Most present day public companies wereonce private, having at one stage gone public with the help of a bank. The big advantage of forming a publiclimited company is that advertisements may be placed in a financial newspapers inviting the public to apply forshares: a prospectus, as this advertisement is called, give details of the company’s past trading record andestimates of future earnings, together with other information required by law.

One of the main reasons for small business failure is not managerial incompetence, but inadequatefinancial planning. Therefore in order to ensure your success you have to learn something about the marketyou want to enter, the goods and services already existing and you have to understand some basic businessand accounting principles. Most probably you will have to employ a skilled person to keep the exact recordsof your business and possibly to give you some professional advice as well. This means writing downcredits and debits, and adding up columns of figures – usually a bookkeeper’s duty, but also recording cashflow and the value of assets and liabilities, calculate profits and losses etc. – which is what an accountantdoes. You will have to know and understand the meaning of some basic accounting jargon such as cashreceipts, journal, check register, double entry, FIFO, trial balance. You need all this, as well as financialstatements, budgets, cash-flow projections a.s.o., both to measure the success of your company and to helpyou make decisions about allocating your resources for future projects.

VOCABULARY

cash flow = flux de numerarcash receipts journal = jurnal de `ncas\ri `nnumerarcheck register = registru de cecuridouble entry = partid\ dubl\FIFO (first in, first out) = metod\ folosit\ `ninventarierea stocurilor care presupune c\cele mai vechi unit\]i (primele intrate) suntprimele v>ndute (ie[ite)loan = `mprumutoverdraft = descoperire `n conttrial balance = balan]\ de verificare

collateral = garan]ie suplimentar\equity capital = capitalul ac]ionarilor(investi]iile proprietarilor `ntr-o companie:ac]iuni comune+profituri nedistribuite),capitalul nominal, capital `n ac]iuni cu dob>nd\fix\gearing = structura de capital; rata de `ndatorareliability = r\spundere, datoriebacker = girantprospectus = prospect, versiune condensat\ asitua]iei de `nregistrare a unei companii carefurnizeaz\ informa]ii asupra h>rtiilor de valoare


COMPREHENSION I

1.1. Answer the following questions:1. You decided to set up your own business. What are the main requirements for such a venture?2. What type of business organization are you going to set up? What are your options?3. As a small business owner do you need to hire professional accounting services or can you

manage by yourself?4. Is it enough to have a professional accountant or do you have to know something about financial

operations yourself?

1.2. Fill in the blanks in the following except. Do not refer to the text until you finish your task.The money needed to start a business is called (a) ……… If you do not have enough (b) ……… you

may borrow some from the bank in the form of a (c) ……… or an (d) ……… Before the bank will give a loanyou cannot pay back the money. This is also called (f) ……… Capital which is borrowed is called (g) ………Capital obtained from investors/investments is called (h) ……… or (i) ……… The (j) ……… between theloan capital and the equity capital determines whether a company has a (k) ……… of a (l) ………

1.3. Match the following words with the definitions given below:a. board of directors i. public limited companyb. multinational corporation j. assetsc. partnership k. unlimited liabilityd. sole proprietorship l. stockholderse. corporation (US), company (UK) m. LIFOf. expenses n. liabilitiesg. sleeping partner o. journalsh. stocks (US), shares (UK) p. FIFO

1. A unincorporated business organization with two or more owners who share responsibility.2. The owners of a corporation.3. The responsibility for debts, even if they are more than the assets of the business firm.4. A business association that is legally regarded as a separate “person”.5. Shares of ownership in a corporation.6. A business owned by one person.7. A person who only invests money in a business, sharing in the profits but not taking any active

part in the management of the firm.8. A corporation that has offices and plants in more than one country.9. A group of individuals elected by the stockholders of a corporation to make major decisions for

the company.10. A company whose members have normally no limitation of their right of transferring their

shares to other persons.11. Amounts owed by the organization to others.12. Accounting technique for calculating cost of inventory based on last in, first out.13. Costs incurred in operating the business, such as rent, utilities and salaries.14. Recording devices used for the first recording of all transactions.

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15. Economic resources owned by a firm, such as land, building and machinery.16. Accounting technique for calculating cost of inventory based on first in first out.

PRACTICE I

2.1. Make sentences to point out the difference between the following words:a. borrow-lend e. bookkeeper-bookmakerb. owe-own f. found-findc. lose-loss-loose g. ensure-insure-assured. advice-advise h. effective-efficient

2.2. Complete the following sentences by using the correct form of the words in brackets:1. It’ a ………… morning! We could go for a walk to the shop. (glory)2. Why are you so ………… of everything your assistant does? (critic)3. I am waiting for a ………… opportunity. (favour)4. He is a very ………… person. (influence)5. Your assignment involved a lot of work, but try to show at least some …………. (origin)6. All in all she has a pleasant personality. If only she would be more …………! (predict)7. Why does your office manager ………… everything I do? (critic)8. I’ll pay cash, but only if you can give me a ………… (receive)9. She is extremely rich. Her ………… is worth several million pounds. (inherit)10. The job includes some ………… duties as well. (manage)

2.3. Put the verbs in brackets into the corect form making any necessary changes:I (sit) in my office the other day when I (tell) that someone (want) (see) me. It was Ana Radu, an old

friend of mine. My personal assistant (invite) het in and (ask) us what we (want) to drink. After she (bring)us coffee and water she (leave) us alone. When I (ask) Ana how she (be), she (tell) me a rather sad story. Shetold me that she (have) to close down her business because of financial difficulties and that she (look) for ajob. She (add) that she (be) in such situation because she (not listen) to those who (advise) her to hire a goodaccountant. If she (not find) a job quickly, she (be) in serious trouble. She (ask) me whether I (can do)anything (help) her (find) something interesting. I (assure) her (do) my best and (ask) her (call) me in a fewdays.


FOCUS ON LANGUAGE

1. Reported statementsWhen we use reported speech, we are usually talking about the past. So verbs are usually changed to the

past and there are some other changes of pronouns and adverbs as well.

Tense of verb of speaking inDIRECT SPEECH INDIRECT SPEECH

presentfuturepresent perfect

(no change)

presentpastpresent perfectwill

pastpast or past perfectpast perfectwould

Examples:

DIRECT SPEECH INDIRECT SPEECHI like doing businessI’m writing a reportI saw the minutes of the meetingI have finished the letterI was having a business meetingI will be in Rome next week

She said she liked doing business.She said she was writing a report.She said she had seen the minutes of the meetingShe said she had finished the letter.She said she had been having a business meeting.She said she would be in Rome next week.

Other changes are to the pronouns and the time adverbials.

PRONOUNSDIRECT SPEECH INDIRECT SPEECH

I/youwe/youme/youus/you

he/shethey

him/herthem

TIME ADVERBIALSDIRECT SPEECH INDIRECT SPEECH

yesterdaytoday

tomorrowlast…next…this…

the day before/the previous daythat day

the day after/the following daythe previous…the following…

that…

NOTE:The tense of the words spoken does not change where the words spoken are still true:

♦ The spokesperson of the government said “A statement will be made in the press.”♦ The spokeperson of the government said a statement will be made in next week’s paper.

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2. Reported commands, orders, requests or instructions♦ He told us to go to the bank tomorrow.♦ I told him not to shout at her.♦ He demanded that the faulty goods be collected as soon as possible.♦ He asked the manager to accept his resignation.

3. Reported questions:There are two types of direct questions:

♦♦ wh-questions, e.g. “Where are you going?”, the police officer asked us.♦♦ yes/no questions, e.g. “Does your company provide financial advice?”

In reported wh-questions we use the wh-question word:♦ The police officer asked us where we were going.

In reported yes/no questions we use if or whether:♦ She asked if/whether your company provided financial advice.

NOTE

The word order in reported questions is affirmative, as in statements.“Are you presently employed?” • She asked me if I was presently employed.“Do you have a driver’s licence?” • She asked whether (if) I had a driver’s licence.

4. Other reported forms:1. “I don’t think that increasing your prices by more than the annual rate of inflation is a wise decision”,

I told the board yesterday.Yesterday I warned them not to increase their prices by more than the annual rate of inflation.

2. “You’d better speak with a lawyer before making a statement”, the auditors told him.They cautioned him not to make a statement before he had consulted his lawyer.

3. She said: “Damn! It’s a virus! Switch off the computer and call maintenance!”She exclaimed nervously that it was a virus and told her assistant to switch off the computer and callmaintenance.

PRACTICE II

4.1. Make a new sentence from these questions.Example:

Where has the operator gone? Do you know …..…… where the operator has gone?1. Where is the CEO’s office? Could you tell me ……………………………………?2. What does this word mean? Do you know ……………………………………….?3. What time is it? I wonder …………………………………………… ?4. Where did you leave your mobile? Can’t you remember ………………………………. .?5. Where can I change some money? Could you tell me ……………………………………?6. What qualifications does Chris need? She wants to know…………………………………. .?


4.2. Look at this extract from the minutes of an annual general meeting. Fill the spaces with anappropriate form of one of the verbs from the box.

The General Manager (a) …………… the audience that a few years ago things were very different. She(b) …………… the time had come to face the situation and she (c) …………… we had to choose betweenchanging the company policy or getting out of business. She (d) …………… that major problems would ariseif we made the wrong decision and (e) …………… if we wanted to be an isolated and regressive company.

4.3. Report the following conversation between the training and the human resource managersof a business company. Choose an appropriate verb of speaking to introduce each sentence.The first sentence has been done for you as an example.

HRM: The CEO told me about the new English language training programme. When will it beintroduced?

TM: I don’t know. But we have approached a number of outside trained organizations.HRM: Good. Could I see the list of suppliers?TM: Sure, I’ll let you see the details. I’ll send them to your office sometime tomorrow.HRM: O.K. Why don’t we meet and make the final decision together?TM: We can meet, but I prefer to make the final decision myself.

Example: The Human Resource Manager asked when the new training would be introduced.

4.4. Translate into English:Mi-a spus c\ este sigur\ c\ a f\cut bine la testul de englez\ financiar\.C>nd am ̀ ntrebat-o de ce nu merge la teatru, mi-a spus c\ are at>t de mult de lucru, ̀ nc>t va trebui s\ stea

p>n\ la miezul nop]ii s\ termine.Ariadna m-a `ntrebat unde m\ duc `n vacan]\, spun>ndu-mi c\ ar dori s\ mearg\ cu mine dac\ ar fi

posibil.Mi-am `ntrebat asistenta dac\ r\spunsese la e-mail [i mi-a spus c\ da.M-a rugat s\ revin dup\ 10 minute, ad\ug>nd c\ va fi gata de plecare de `ndat\ ce va termina ce are de

f\cut.Diversitatea sistemelor contabile `n lume este un fapt u[or de constatat. Putem s\ ne g>ndim `n mod

rezonabil c\ evolu]ia economic\ – marcat\ de interna]ionalizarea pie]elor [i de activitatea `ntreprinderilor, [imai ales de cre[terea investi]iei interna]ionale directe – va determina tot mai mult na]iunile s\ `ncerceapropierea sistemelor contabile proprii. Aceast\ apropiere este solicitat\ `n mod insistent de investitoriistr\ini care vor s\ compare, folosind criterii echivalente, oportunit\]ile plas\rii capitalului. Studiile comparativede specialitate au demonstrat c\ rezultatele aceleia[i `ntreprinderi sunt sensibil diferite `n func]ie de metodelecontabile folosite de la o ]ar\ la alta.

4.5. HumorMoney and activities related to it are an endless source for jokes in all cultures. Complete the following

ones and use them when you need to entertain business people:

ask warn believe say remind

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a. “If you …… your bank a hundred pounds, you …… a problem. If you …… it a million pounds, it…… a problem!” – John Maynard Keynes.

b. “If you can actually …… your money, then you ar not really a rich man”. – John Paul Gettyc. “The purpose of studying economics is not to acquire a set of ready-made …… to economic questions,

but to learn how to avoid being …… by economics”. – Joan Robinsond. “Pan Am takes …… of you. Marks and Spencer …… you, Securicor cares. At Amstrad, we …… your

money”. – Alan Sugar (founder of Amstrad)e. Do enjoy your work?

I love my work. I could …… at it all day.g. How many people work here?

About …… of them.i. When does my pay rise become effective?

When …… do.

ANSWER KEY

COMPREHENSION I

1.1. a) capital; b) loan; c) money; d) overdraft; e) security; f) collateral; g) loan capital; h) share capital; i)equity capital; j) ratio/proportion; k) high gearing; l) low gearing.

1.2. a-9; b-8; c-1; d-6; e-4; f-14; g-7; h-5; i-10; j-15; k-3; l-2; m-12; n-11; o-14; p-16.

PRACTICE I

2.1. Suggested answers:a. I lost my ballpoint pen. Can I borrow yours?

He never pays you back, so nobody is willing to lend him money.b. You saved my life! I owe you everything I have!

He has done very well: he owns his house in town and bought himself a cottage in Sinaia.c. To lose such a good friend must be a great loss indeed!

I can’t find that phone number. I wrote it one a loose sheet of paper.d. That’s an interesting piece of advice.

I can’t advise you on this matter. I don’t have all the necessary information.e. A bookkeeper has to record every purchase and sale that a business makes.

A bookmaker accepts bets (on races) that were traditionally written down in a book.f. He wants to found a new company, but finds it difficult to rise the capital he needs.g. A good manager has to ensure the necessary working conditions for his employees.

I want to assure you that you have to be careful when you insure your life.h. The new secretary filed all last term’s letters – isn’t that efficient?

I think the new logo looks very effective on the company stationery.


2.2. 1. glorious; 2. critical; 3. favourable; 4. influential; 5. originality; 6. predictable; 7. criticize; 8.receipt; 9. inheritance; 10. managerial.

2.3. Suggested answers:I was sitting in my office the other day when I was told that someone wanted to see me. It was Ana

Radu, an old friend of mine. My personal assistant invited her in and asked us what we wanted to drink. Aftershe had brought/brought us coffee and water she left us alone. When I asked Ana how she was, she told mea rather sad story. She told me that she had had to/had to close down her business because of financialdifficulties and that she had been looking/was looking for a job. She added that she was in such a situationbecause she hadn’t listened to those who had advised/advised her to hire a good accountant. If she didn’tfind a job quickly, she would be in a serious trouble. She asked me whether I could do anything to help herfind something interesting. I assured her I would do my best and asked her to call me in a few days.

PRACTICE II

4.1.1. Could you tell me where the CEO’s office is?2. Do you know what this word means?3. I wonder what time it is?4. Can’t you remember where you left your mobile?5. Could you tell me where I can change some money?6. She wants to know what qualifications Chris needs?

4.2. a) reminded; b) said; c) believed; d) warned; e) asked.

4.3. The HRM asked when the new English language training would be introduced. The TM repliedthat she didn’t know. But she added that they had approached a number of outside training organizations.The HRM asked if he could see the list of suppliers. The TM agreed to let him see the details. The HRMsuggested a meeting and making the final decision together. The TM agreed with the meeting, but repliedthat she preferred to make the final decision herself.

4.4. Suggested answers:1. She told me she was sure she had done well in the financial English test.2. When I asked her why she wasn’t going to the theatre, she said she had so much work to do

that she would have to stay up till midnight to finish it.3. Ariadna asked me where I was going for my holidays, saying she would like to go with me if

it waw possible.4. I asked my assistant whether she had answered the e-mail and she said that she had.5. He asked me to come back in ten minutes, adding that he would be ready to leave as soon as he

had finished what he was doing.6. The diversity of accounting systems in the world is easy to notice. We can reasonably think

that the economic evolution marked by the globalization of markets and the activity of enterprises,especially by the direct international investments, will determine nations to try to harmonizetheir accounting systems. This harmonization is increasingly asked for by foreign investors

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who want to compare the opportunities of capital investment by using equivalent criteria.Comparative specialized research demonstrated that the results of one and the same companyare obviously different according to the accounting methods used by various countries.

4.5.a) owe, have, owe, has; b) count; c) answers, deceived; d) good care, love, want; e) look; f) half;

g) you.

UNIT 4 – Module II 85

UNIT FOUR

MODULE II

LEAD-IN

♦ Are you a careful spender?♦ How do you manage your weekly “budget”?♦ They say that everyone should be a good accountant when managing their own money. Are you?♦ Do you keep track of your “debits” and “credits”?♦ Why do you think businesses should keep financial records?


ACCOUNTING AND BOOKKEEPING

Accounting is the process of systematically collecting, analysing and reporting financial information.Because of its great value, business owners have been concerned with financial information for hundreds ofyears: The first book of accounting principles was written in 1494, by an Italian monk named Paciolo.

Modern accounting in the United States can be traced back to the establishment of the AmericanInstitute of Certified Public Accountants (AICPA) in 1887. By the early 1900s, accounting instruction wasoffered at many colleges and universities. Today, accounting courses are required for virtually every type ofbusiness degree.

Many people confuse accounting with bookkeeping, but there are important differences between thetwo. Accounting deals with the entire system of providing accurate and up-to-date financial information –from the design of the system through its operation to interpretation of the information that is obtained. Tobecome an accountant, an individual must undergo years of training and accumulate a great deal of practicalexperience.

On the other hand, bookkeepers are responsible for obtaining the financial data that the accountingsystem processes. An accounting system cannot operate without good, accurate bookkeeping, but a bookkeepercan generally be trained in a year or two.

Classification of accountantsAccountants are people who are trained and experienced in the methods and systems of accounting.

They are generally classified as private accountants or public accountants.A private (or non-public) accountant is an accountant who is employed by a specific organization.

A medium-sized or large firm may employ one or several private accountants to design its accountingsystem, manage its accounting department, prepare the variety of reports required by management or bylaw, and provide managers with advice and assistance. Private accountants provide their services only totheir employers.

Smaller and medium-sized firms that don’t require full-time accountants can hire the service of publicaccountants. A public accountant is an accountant whose services may be hired on a fee basis by individuals

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or firms. Public accountants may be self-employed or they may work for accounting firms. Accounting firmsrange in size from one-person operations to huge international firms with hundreds of accounting partners andthousands of employees. Among the largest accounting firms we can mention Arthur Andersen & Co.,Coopers and Lybrand, Deloitte and Touche, Ernst & Young, KPMG, Price Waterhouse etc.

The double-entry bookkeeping systemDouble-entry bookkeeping is a system in which each financial transaction is recorded as two separate

accounting entries to maintain the balance shown in the accounting equation. The basic principle of double-entry bookkeeping is that every transaction has twofold effect: a value is received and a value is yielded orparted with. Both effects, which are equal in amount, must be entered completely in the bookkeeping records.One entry changes the left (assets) side of the equation, and the other entry changes the right (liabilities-owner’s equity) side.

The accounting cycleIn the typical accounting system, raw data are transformed into financial statements in five steps. The

first three – analysis of the source documents (receipts, invoices, sales slips, etc.), journalising the transactions(every financial transaction is next recorded in a journal) and posting (the information recorded in thegeneral journal or specialised journals is transferred to the general ledger, which is a book of accountcontaining a separate section for each account) – are performed on a continual basis throughout the accountingperiod. The last two – preparation of the trial balance (which is a summary of the balances of all generalledger accounts) and the financial statements (which are prepared from the information contained in the trialbalance) – are performed at the end of the accounting period. Once these statements have been prepared andchecked, the firm’s books are “closed” for the accounting period. A new accounting cycle is then begun forthe next period.

VOCABULARY

accounting, n. = contabilitateaccountant, n. = contabilpublic accountant, n. = contabilautorizatCPA (Certified Public Accountant), n.= contabil autorizatCA (Chartered Accountant), n. = expertcontabilmanagerial accounting, n. =contabilitate de gestiune/managerial\financial accounting, n. = contabilitatefinanciar\bookkeeping, n. = contabilitate primar\

accounting system, n. = sistem contabilaccurate, adj. = exact, corectup-tp-date, adj. = de ultim or\, la zito undergo, underwent, undergone, v. = atrece prin, a suferiself-employed, adj. = liber profesioniston a fee basis = pe baz\ de comisionaccounting firms, n. = firme decontabilitateto hire, v. = a angajajournal, n. = registru, jurnalledger, n. = carte mareaudit, n. = audit, expertiz\ contabil\


COMPREHENSION I

1.1. Answer the following questions on the text:1. When was the first book on accounting principles written?2. What is the main difference between accounting and bookkeeping?3. What do accountants do?4. What do bookkeepers do?5. How are accountants generally classified?6. Can you name some of the largest American accounting firms? Are they represented in Romania?7. What is “double-entry bookkeeping system”?8. What are the five steps of the accounting cycle?

PRACTICE I

2.1. Match the following terms with the definitions listed below:

1. ………………………………………… Working out the unit cost of products includingmaterials, labour and all other expenses.

2. ………………………………………… Calculating an individual’s or a company’s liabilityfor tax.

3. ………………………………………… Inspection and evaluation of accounts by a second setof accountants.

4. ………………………………………… Using all available accounting procedures and tricksto disguise the true financial position of a company.

5. ………………………………………… Concerned with measuring and reporting costs,budgeting, and decreasing tax liabilities.

6. ………………………………………… Accountants who conduct an independent audit. Theymay design an accounting system, prepare or do taxes,or provide other assistance.

7. ………………………………………… The methods used to record and summarise data, theymay be computerised so as to enable a firm to get dailyfinancial reports.

8. ………………………………………… Records, classifies, summarises and interprets financialevents and transactions.

9. ………………………………………… Recording of transactions from original transactiondocuments into journals.

Independent auditAccountingManagerial accountingCPAFinancial accountingAuditing“Creative Accounting”

BookkeepingCost AccountingPublic accountantAccounting systemPrivate AccountantTax Accounting

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10. ………………………………………… These accountants must pass a series of exams, andhave prestige among their peers and the businesscommunity.

11. ………………………………………… This person may pass an exam to become a CMA, butmay not be a CPA. They work for a single business,government agency or non-profit organisation.

12. ………………………………………… The preparation and analysis of financial statementsfor outsides interests.

13. ………………………………………… This is an unbiased evaluation about the accuracy ofcompany financial statements.

2.2. Complete the text using these words:

Bookkeepers record every purchase or sale of a business in (1) ………… These temporary records areentered in or (2) ………… to the relevant account book or (3) ………… At the end of an accounting period,all the relevant totals are (4) ………… to the profit and loss account. (5) ………… bookkeeping records thedual effect of every transaction. Payments made or (6) ………… are entered on the left-hand (debtor) sideof an account, and payments received or (7) ………… on the right-hand side. Bookkeepers will periodicallydo a (8) ………… to test whether both sides of an account book match.

2.3. Select the answer which best completes or explains the meaning of the sentences:1. Financial information is regularly transferred from the journal to a book containing all the accounts.

This means that the figures are:a. entered in the journal;b. posted in the ledger;c. balanced;d. considered as assets.

2. The best way to explain the difference between bookkeeping and accounting is:a. bookkeeping is done by a bookkeeper, but accounting must be done by an accountant;b. bookkeeping is the daily recording of financial information, but accounting is the design

and maintenance of the bookkeeping system;c. bookkeeping is done in the journal, but accounting is done in the ledger;d. bookkeeping is more sophisticated than accounting.

3. An accountant can interpret the information found in the ledger and use it to construct financialstatements. This means an accountant can:a. make financial decisions for the company;b. allocate capital resources;c. prepare a balance sheet and income-expense statement after examining the accounts;d. analyse bookkeeping procedures.

4. Management analyses the financial statements and uses them as a basis for allocating financial resources.This means:

trial balance; posted; credits; journals; debits; ledger; double-entry; transferred


a. all transactions and sales of securities must be considered;b. the statements help them decide how to invest their capital;c. the sale of securities can help finance expansion;d. all of the above.

2.4. Fill in the blanks with the following words:

report, accounting methods, accounting period, account day, accountingprocedures, managerial accounting, debit, credit, defer payment

1. An amount entered by a bookkeeper in the left-hand side of an account is called a ………2. On the other hand, an amount entered in the right-hand side of an account is called a ………3. The role of ……… is to provide figures and statements that will aid decision making.4. Auditors check companies’ accounts and write a ………5. Since we cannot afford it now, we are going to ……… of this debt.6. The ……… at the New York Stock Exchange usually lasts two weeks.7. The accounting period is followed by an ………8. Auditors are expected to ensure that companies follow their stated ………9. Companies can choose from a variety of ………, but they are not allowed to change them too

often.

FOCUS ON LANGUAGE

PRACTICE II

3.1. Look at the example and report what was said by using the words in brackets.Example: Liana said: “Maria, would you give me your rubber, please?”

(ask) Liana asked Maria to give her her rubber.1. I said to my personal assistant: “Remember to send the letter.”

(remind) ..………………………………………………………2. “You must finish your project, ladies”, the tutor said.

(tell) ………………………………………………………………3. “Please, listen to the General Manager, Mrs. Inas”, said the President.

(try to persuade) …………………………………………………4. “You should see a lawyer”, the auditor said to Andrei.

(advise) ……………………………………………………….5. She said: “Ladies and gentlemen, do not rush to buy those shares.”

(warn) ……………………………………………………….6. “Marilena, please let me use your credit card”, said Petre.

(ask) ……………………………………………………….

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3.2. Below is part of an interview with the spokesman of the Prime Minister. Complete thenewspaper report which follows by adding an appropriate verb.

Q: Has the present Government considered changing its economic policy?A: No, we are working towards increasing the quality of services and making the economy strong.Q: What do you forecast as an average level of inflation for the next year?A: In our opinion inflation will continue at present levels – which is about 2.5 percent.Q: Is the government confident that economic growth will remain strong?A: Definitely. Economic growth is now at 2 percent and we believe it should rise to 4 percent over

the coming year.

(a) ………… if the policy or the government (b) …………, the spokesman of the Prime Minister (c)………… the government (d) ………… towards increasing the quality of services and making the economystrong. He (e) ………… that inflation (f) ………… at present level – around 2.5 percent – and economicgrowth, now at 2 percent (g) ………… to 4 percent.

3.3. Here is an extract from a telephone conversation between Jannine, a fashion designer, andAdrian, an off-the-peg clothes manufacturer.

Janinne: Did you receive the photos I’d sent?Adrian: Yes, they were very good. Everybody liked them a lot. I think we can have a really successful

promotional campaign. Now, when are you coming to Bucharest?J: I’m not sure yet, but I suppose next month maybe. Yeah, let’s settle it now. I’ll come at the

beginning of March.A: Will you bring the designs of the new collection as well?J: You bet! And even better, I’ll try to bring not only the designs, but the clothes too. They’re

almost made and you can see them when I come.A: I know Alina wants to see them. I’ll let her know you’re coming at the beginning of March.J: That’s all right. Oh, by he way, Alina still owes Frank some money, you know. She has

probably forgotten about it. She said the money would be in his bank last week and nothinghappened yet.

A: All right, I’ll tell her. Is there anything else?J: No, I don’t think so. Can you ask Alina to call me? I have some other things to talk with her.

I’ll be in my office all day on Wednesday.A: Okay, I’ll tell her. Bye-bye and have a good day.

rise predict continue ask change say work


Write a brief letter to Alina telling her the details of this conversation. Use the model below as anoutline.

3.4. Translate into English:1. Era foarte nervos [i a vrut s\ [tie de ce l-am `ntrerupt in timp ce lucra.2. Ionu] a spus c\ noua ma[in\rie tocmai sosise [i m-a ̀ ntrebat unde s-o pun\. I-am spus c\ pentru moment

s-o lase unde era [i am ad\ugat c\ `i voi spune mai t>rziu ce s\ fac\ cu ea.3. Ne-a `ntrebat cine suntem [i cum am intrat `n cl\dire. I-am spus c\ suntem reporteri [i doream s\ afl\m

c>te ceva despre spargerea care avusese loc noaptea trecut\. Ne-a spus c\ nu avem nici un drept s\ neafl\m acolo [i a ad\ugat c\, dac\ nu plec\m imediat, va chema poli]ia.

4. C>nd mi-a spus c\ nu-i plac locurile, i-am r\spuns s\ nu se mai pl>ng\, pentru c\ eram oricum noroco[ic\ avem locuri la un astfel de concert.

5. Am ̀ ntrebat-o pe recep]ioner\ dac\ pot s\ achit nota ̀ n seara aceea, explic>ndu-i c\ urma s\ plec foartedevreme a doua zi. Ea a spus c\ va preg\ti nota de plat\ [i m-a `ntrebat la ce or\ vreau s\ fiu trezit.

^ MODA ZILEI ̂

POB 42 – 99; BucharestPhone: 40 (1) 356 78 88; Fax: 40 910 356 78 89

Ms. Alina UndressCalea Victoriei 14374210 Bucure[ti

Ref: AS/23/0427 January 1999

Dear Alina,

I spoke to Jannine yesterday. I told her (a) …… the photographs and (b) ………… a successfulpromotional campaing. She said (c) ……… to Bucharest at the beginning of March. She also said (d)……… the desings and the finished clothes. She (e) ……… me to remind you that (f) ……… She saidyou (g) ……… the money (h) ……… in his bank last week but (i) ……… arrived.Finally, she (j) ……… it you (k) ……… call her. She said (l) ……… all day on Wednesday.

Best wishes,

Adrian

Adrian

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COMPREHENSION II

4.1. In order to present a true and fair view of a company’s finances, there have been accepted anumber of “accounting principles” or “policies” that accountants must follow in preparingaccounting records and summarising them in financial statements. Match these accountingprinciples with their definitions:

1. The continuity or goining-concern principle.2. The revenue or realisation principle.3. The unit of measure assumption.4. The time-period or accounting period assumption.5. The separate entity or accounting entity assumption.6. The principle of conservatorism or prudence.7. The full-disclosure principle.8. The objectivity principle.9. The consistency principle.10. The matching principle.11. The historical cost principle.

a. All data recorded should be verifiable and free from bias.b. Financial reporting must include all significant information.c. The revenues generated in an accounting period are identified with related costs whenever they were

incurred.d. The same methods (of inventory valuation, depreciation etc.) must be used from one period to the next.e. Where alternative accounting methods are possible, one understates rather than overstates profits.f. All transaction and other items to be accounted for must be in a single monetary unit.g. An enterprise is an accounting unit separate from its owners, creditors etc.h. Financial data must be reported for particular periods which make accrual and deferral necessary.i. Revenue is realised at the moment when goods are sold or when services are rendered.j. The business will continue indefinitely into the future.k. The initial price paid for the acquisition of assets is the one that is recorded in accounts.

4.2. Word partnershipsAll the words below can be combined with account, accounts or accounting in a two word partnership.Examples: bank account

accounts payabletax accounting

1. ………… methods 7. ………… receivable2. ………… day 8. ………… book3. ………… equation 9. Cost ……………………4. ………… payable 10. Managerial ……………5. ………… principles 11. Profit and loss …………6. ………… period 12. Tax ………… …………


4.3. HumorAccountants are traditionally the target of a lot of jokes, but considering the fees they charge they

usually have the last laugh. Match up the halves of the following jokes:

1. How can you tell if accountants are lying? a. Waiter!2. What do you have if you have five accountants b. Cut the rope.

up to their necks in sand?3. Why don’t auditors become accountants? c. They can’t take the excitement.4. What do you call a former accountant? d. Not enough sand.5. How do you get an accountant down from a tree? e. Their lips are moving.

4.4. Translate into English:Contabilitatea este o tehnic\ ce permite, prin adunarea datelor numerice [i organizarea lor `ntr-un

ansamblu coerent, `nf\]i[area activit\]ii [i rezultatelor unei `ntreprinderi sau, mai general, a unei organiza]ii.Documentele contabile produse de o organiza]ie se prezint\ sub forme diferite ce corespund, de fapt, unornevoi de informare diferite. Nu se pot ̀ n]elege cu adev\rat func]ionarea [i mai ales semnifica]ia conturilor, f\r\cunoa[terea principiilor care au stat la baza elabor\rii lor [i condi]iile `n care au fost create.

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UNIT FOUR

MODULE II

ANSWER KEY

PRACTICE I

2.1. 1. cost accounting; 2. tax accounting; 3. auditing; 4. creative accounting; 5. managerial accounting;6. Public Accountant; 7. Accounting system; 8. Accounting; 9. Bookkeeping; 10. CPA; 11. Private Accountant;12. Financial accounting; 13. Independent audit.

2.2. 1. journals; 2. posted; 3. ledger; 4. transferred; 5. Double-entry; 6. debits; 7. credits; 8. trialbalance.

2.3. 1. b; 2. b; 3. c; 4. b.

2.4. 1. debit; 2. credit; 3. managerial accounting; 4. report; 5. defer payment; 6. accounting period; 7.account day; 8. accounting procedures; 9. accounting methods.

PRACTICE II

3.1.1. I reminded my personal assistant to send the letter.2. The tutor told the students to finish their projects.3. The President tried to persuade Mr. Inas to listen to the General Manager.4. The auditor advised Andrei to see a lawyer.5. She warned the shareholders not to buy those shares.6. Petre asked Marilena to lend him her credit card.

3.2. a) asked; b) would change; c) said; d) was working; e) predicted; f) would continue; g) would rise.

3.3. a) we liked/had liked; b) we could have; c) she would come/was coming; d) she would bring; e)asked; f) you still owe Frank some money; g) promise/said; h) would be; i) hasn’t/hadn’t ; j) asked; k) would;l) she would be in.

3.4. Suggested answers:1. He was very irritated and he wanted to know why I had intrerrupted him in the middle of his

work.2. Ionu] said that the new machine had just arrived and asked where he should put it. I told him

leave it where it was for the time being, saying that I would tell him later what to do with it.3. He asked us who we were and how we had got into the building. We told him we were

reporters and that we wanted to know something about the robbery that had taken place the


previous night. He said that we had no right to be there and added that if we didn’t leaveimmediately, he would call the police.

4. When she told me she didn’t like the seats, I told her not to complain and added that we werelucky to have got seats at all for such a concert.

5. I asked the receptionist whether I could pay my bill that night, explaining that I had to leavevery early the following morning. She said she would prepare the account and asked what timeI would like to be called.

COMPREHENSION II

4.1. 1. j; 2. i; 3. f; 4. h; 5. g; 6. e; 7. b; 8. a; 9. d; 10. c; 11. k.

4.2. 1. accounting; 2. account; 3. accounting; 4. accounts; 5. accounting; 6. accounting; 7. accounts; 8.account; 9. accounting; 10. accounting; 11. account; 12. accounting.

4.3. 1. e; 2. d; 3. c; 4. a; 5. b.

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UNIT FOUR

MODULE III

LEAD-IN

1. Where are business transactions first recorded?2. Do you know which are the basic financial statements?3. Does the balance sheet of a company tell you anything about the financial situation of that company?

How?


THE BALANCE SHEET

The financial statements generally consist of the balance sheet, income statement, statement of changesin shareholders’ equity, statement of cash flow and footnotes. The annual financial statements are usuallyaccompanied by an independent auditor’s report. An audit is a systematic examination of a company’sfinancial statements; it is typically undertaken by a Certified Public Accountant (CPA) The auditor’sreport attests to whether the financial reports are presented fairly in keeping with the Generally AcceptedAccounting Principles, known as GAAP for short.

The balance sheet is a financial statement which indicates the condition of a company on a specificdate. It is called a balance sheet because it expresses the basic accounting formula: Assets = Liability +Owner’s Equity (Owner’s equity is sometimes referred to as net worth). The left side of the balance sheetitemizes the firm’s assets. Assets are anything of value to a company. On a balance sheet the value is alwaysexpressed in terms of money. Companies have different types of assets. They are usually divided into twogroups: current assets and fixed assets.

Current assets are either cash or items which will be turned into cash during the current businessperiod, such as merchandise to be sold and payments to be received. In addition to cash, inventories, andreceivables companies, sometime, have stocks and bonds. These are referred to as securities. All of theseassets, such as cash and those readily turned into cash, are known as liquid assets. If a company needs tohave more cash for one reason or another, it can liquidate some of its stocks and bonds. On the other hand,merchandise which is not selling quickly because there is not much demand is not very liquid, even thoughit is considered as current assets.

Fixed assets are those that will be kept and used for a long time. Fixed assets are usually itemizedaccording to their use to the firm. They generally include land, buildings and equipment. New machineryand production equipment are valued at their cost. As the equipment is used, its value decreases. Thisdecreases in value is called depreciation. Used equipment is therefore carried on the books at original costless depreciation. Depreciation is usually calculated on a yearly basis by dividing the total cost of the equipmentby the number of years of useful life. For example, a taxicab may cost $12,000 when new. The taxicab ownermay use it for three years and then he will have to purchase a new one. The depreciation on the taxicab is $4,000 per year. Therefore, after one year the value of the taxicab on the balance sheet would be $ 12,000 - $4,000 = $ 8,000. After two years it would be $ 12,000 - $ 8,000 = $ 4,000. There are various formulae andmethods used for calculating depreciation.

UNIT 4 – Module III 97

Intangible assets are assets that do not exists physically but have a value based on legal rights andadvantages that they confer on a firm. They include patents, copyrights, trademarks, and goodwill. By theirnature, intangible assets are long-term assets. They are of value to the firm for a number of years. Goodwill isthe value of a firm’s reputation, location, earning capacity, and other intangibles that make the business aprofitable concern. Goodwill is not normally listed on a balance sheet unless the firm has been purchased fromprevious owners. In this case, the purchasers have actually paid an additional amount (over and above thevalue of the previous owners’ equity) for this intangible asset.

The opposite side of the balance sheet shows the liabilities. These are amounts which the companyowes. Companies owe money to banks that supply credit, to employees whom they haven’t yet paid, togovernments for taxes, and to other companies that have sold them goods which they haven’t yet paid for.Liabilities, like assets, are divided into two groups. Current liabilities are debts which must be paid duringthe current business cycle. They would include accounts payable, taxes payable, accrued wages payable,and interest on borrowed money. Companies also have long term liabilities. These are debts which do nothave to be repaid for many years. Companies usually have to pay interest on long term debts. The debts maybe in the form of bonds, which are securities sold to banks or other investors, or a mortgage, which is moneyborrowed from banks for the purpose of purchasing property or equipment. The payment of bonds is usuallyguaranteed by the reputation of the company. Mortgages, on the other hand, are guaranteed by the value ofthe mortgage property.

After a company subtracts its debts from its assets, the figure arrived at is the net worth of the companyor its owner’s equity. Depending upon the type of company, there are different types of owners. A corporationis owned by stockholders, and so equity will be shown as the value of the stock. This value is the book value.It may or may not be equal to the value of the stock exchange or market value. Companies whose stock isselling at prices considerably below book value are likely to be taken over by other companies. The owners’equity of a partnership is allocated according to the articles of copartnership. For a sole proprietor, there is onlyone owner and the owner’s equity is the value of the business to him.

Here is an example of balance sheet for a privately held corporation:

NICHOLAS TIMBER COMPANYStatement of Financial Condition

as of December, 31, 1998

ASSETS

Curent assetsCash:Cash on hand $ 944.96City Bank 4,915.82Notes Receivable 18,576.59Inventory 45,683.71Prepaid Insurance 1,068.29Prepaid Expense 7.50

Total Current Assets $ 72,524.07

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Fixed AssetsMachinery & EquipmentLess: Accumulated Depreciation $ 7,789.47

2,900.86Truck & Automobile $ 4,888.61Less: Accumulated Depreciation 7,934.91

5,784.16Furniture & Fixtures $ 2,150.75Less: Accumulated Depreciation 1,382.85

697.10$ 685.75

Total Fixed Assets $ 7,725.11

Other AssetsIncorporation Expense 225.00

Total Assets $ 80,474.18

LIABILITIES & CAPITAL

Current LiabilitiesAccount Payable $ 9,608.97Accrued Wages 73.26Accrued Sales Tax 1,218.36Accrued Expenses 851.83Accrued Transportation Tax 2.07Accrued Rent 1,144.51Customers’ Deposits 20.00

Total Current Liabilities $ 12,919.00

Long Term LiabilitiesNotes Payable $ 28,573.61

Total Liabilities $ 41,492.61

Capital/Owners’ EquityCapital Stock Authorized & Issued $ 5,000.00

Retained Earnings $ 24,519.75Less: Distributions 1,983.23

22,536.52Net Profit for YearEnding December 31, 1998 11,445.05Retained Earnings 33,981.57

Total Capital 38,981.57TOTAL LIABILITIES & CAPITAL $ 80,474.18


VOCABULARY

to itemize, v. = a specifica, a detaliaasset, n. = activ; bunuri patrimonialeassets and liabilities = activ [i pasiv; active curentecurrent asset = mijloace circulante; active curentefixed asset – mijloace fixeto undertake, undertook, undertaken, v. = aefectua, a prelua

merchandise, n. = inventar; marf\,m\rfuridepreciation, n. = amortizaregoodwill, n. = renume, vad comercialaccrued = acumulatemortgage, n. = ipotec\receivables = (sume) de primit

COMPREHENSION I

1.1. Answer the following questions:1. What are the annual financial statements accompanied by?2. Who undertakes the audit of the company’s financial statements?3. What does the auditor’s report attest?4. Why do managers need financial statements?5. What does the balance sheet indicate?6. Why is it called a balance sheet?7. Where are the assets itemized?8. What is another word for owners’ equity?9. What are the two kinds of assets?10. How are current assets defined?11. What is the value of all things that “Nicholas Timber Company” owns?12. What is the total value of debts?

PRACTICE I

2.1. There are five major accounts used to prepare financial statements:Assets (current, fixed, intangible)LiabilitiesOwners’ equityRevenuesExpenses

Match the type of account to the following (if an asset, indicate current, fixed or intangible):1. .............................................................. cash2. .............................................................. retained earnings3. .............................................................. accounts payable/creditors4. .............................................................. interest5. .............................................................. rent6. .............................................................. land7. .............................................................. commission revenue8. .............................................................. gross sales9. .............................................................. capital stock

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10. ............................................................ copyright11. ............................................................ notes payable12. ............................................................ accounts receivable/debtors13. ............................................................ equipment14. ............................................................ advertising15. ............................................................ wages16. ............................................................ retained earnings17. ............................................................ accrued expenses

2.2. For each of the preceding 17 accounts tick the one you would find on a balance sheet.

2.3. Fill in with missing prepositions in the following text:Provisions (1) ………… doubtful debts increased (2) ………… eight million pounds. Depreciation

(3) ………… leased assets and (4) ………… premises and equipment, calculated (5) ………… a straightline basis amounted (6) ………… fifteen million pounds. Other expenses increased (7) ………… a little (8)………… seventeen (9) ………… cent, (10) ………… twenty-four million (11) ………… twenty-eightmillion pounds; this illustrated our determination (12) ………… keep costs (13) ………… control. Dividendsremaind unchanged (14)… the previous year’s (15) … five millions pounds as the major part (16) …………the year’s profit (17) ………… expand our consolidated capital base. Our balance sheet footings have beengrowing steadily (18) ………… recent years and this was (19) ………… fact first year (20) ………… whichthey passed the three billion pounds mark.

2.4. Rephrase the underlined words and expressions in bold with “balance sheet vocabulary”

Example: The value of the company is equal to the amount of money it owes to creditors and theamount it owes to its owners.The assets of the company are equal to the liabilities and owners’ equity.

1. On the right side of the page are listed the debts and the net worth.2. Certain items of value to the company are bought and sold on a regular basis; other items are

held by the company for a long time.3. Merchandise and money owed the company are considered current assets.4. The value of machinery is determined by subtracting its decline in value due to use from its

original cost to the company.5. Debts are divided into two groups: debts to be paid during the present business year and debts

to be paid over many years.


FOCUS ON LANGUAGE

PRACTICE II

3.1. Put the verbs in brackets into their correct tense making any other changes if necessary:a. When I (arrive) at the railway station half hour late, I (find) that the train already (leave).b. I (be told) that I (have) to wait an hour for the next one.c. While I (wait) in the restaurant I (see) a friend of mine.d. It turned out that he, too, (go) to Bra[ov.e. He said he (go) on business and (be) there about a week.f. I (be) glad that I (miss) the train; for if I (catch) it, I (not see) my friend.

3.2. Put the following into Reported Speech:1. “Are there any letters for me?” said the sales manager when she returned from her business trip.2. “I’m broke”, said our accountant. “Shall I lend you some money?” said the financial manager.3. “I often see lights late at night, after working hours, in the office building across the road”, said our

security man. “Do you think I should report it?”4. “Could you please ring back in half an hour?” said the secretary.5. “Go on – apply for the job”, said my fiancee. “It would just suit you.”6. “You’d better not keep your money in the drawer”, said one of my friends. “Why don’t you open a

bank account?” said another.

3.3. Translate into English:1. Mi-a spus [eful s\ nu fumez `n biroul decanului dac\ nu vroiam s\ dau de necaz.2. {eful m-a `ntrebat de ce nu lucrez mai mult [i mi-a spus c\ voi regreta mai t>rziu.3. Prietena cumnatei mele spunea c\ niciodat\ nu putea s\-[i aminteasc\ unde ̀ [i punea ochelarii [i asta o

enerva cumplit.4. Primul Ministru a declarat c\ va merge la `nt>lnirea la nivel `nalt de la Bruxelles dac\ obliga]iile `i vor

permite.5. Se `ntreba dac\ se vor mai `nt>lni vreodat\, dar ea l-a asigurat c\-l va ajuta dac\ va fi necesar.

COMPREHENSION II

4.1. Read the following text about the income statement:An income statement is a summary of a firm’s revenues and expenses during a specified accounting

period. The income statement is sometimes called the earnings statement or the statement of income andexpenses. It may be prepared monthly, quarterly, or annually. An income statement covering the previousyear must be included in a corporation’s annual report to its stockholders.

While the balance sheet shows the fundamental soundness of a company by reflecting its financialposition at a given date, the income statement may be of grater interest to investors for two reason:♦ the income statement shows the record of the company’s operating results for the whole year;♦ it also serves as a valuable guide in anticipating how the company may do in the future.

The income statement consists of four sections. The basic formula is:Revenue minus cost of goods sold = gross profit

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Gross profit minus operating expenses = profit before taxesProfit before taxes minus taxes = net profit.

4.2. Go back to exercise 2.2 again and indicate whether you would find them on a balance sheet(BS), or an income statement (IS):

1. 10.2. 11.3. 12.4. 13.5. 14.6. 15.7. 16.8. 17.9.

4.2. Construct an accurate income statement for Florio Inc., using the accounts listed below;insert them in the blank spaces of the model given:

FLORIO INC.

INCOME STATEMENTYear ending Dec. 31, 1998

1. …………………… 77,8002. Rental Revenue 3,7003. Total Sales 81,5004. …………………… 33,5005. Gross Profit $48,200

6. OPERATING EXPENSES7. Selling Expenses 19,4008. …………………… 8,6009. …………………… 28,00010. General Expenses 3,10011. …………………… 4,30012. …………………… 3,20013. Depreciation Expenses 10,60014. Total Operating Expenses $38,600

15. Net Income before Taxes $ 9,60016. Less Income Tax Expenses $ 2,40017. Net Income $ 7,200


4.4. In the following table we have listed some of the more obvious and important differencesbetween British and American English widely used terms in the area of finance. Study themand try to give their Romanian Equivalent:

British American RomanianAnnual General Meeting (AGM) Annual Stockholders MeetingArticles of Association Bylawsauthorized share capital authorized capital stockbarometer stock bellweather stockbase rate prime ratebonus/scrip/capitalization issue stock dividend/stock splitbridging loan bridge loanbuilding society saving and loan association/”thrift”cheque checkcompany corporationcreditors accounts payablecurrent account checking accountdebtors accounts receivablegilts/gilt-edged stock Treasury bondslabour laborMemorandum of Association Certificate of Incorporationmerchant bank investment bankordinary share common stockoverheads overheadprofit and loss account income statementproperty real estatequoted company listed companyretail price index (rpi) consumer price index (cpi)share stockshare premium paid-in surplusshareholder stockholdershareholder’s equity stockholder’s equitystock inventorytrade union labor unionunit trust mutual fundsvisible trade merchandise trade

4.5. Translate into English:Cele dou\ mari [coli de contabilitate – cea anglo-saxon\ [i cea francez\ (numit\ [i continental\) – `[i

au, printre altele, originea [i `n diferen]e de natur\ cultural\ [i de civiliza]ie. Anglo-saxonii dau prioritateinforma]iilor necesare lu\rii diciziilor de c\tre investitori conform principiilor liberalismului prin care seacord\ pu]in\ considera]ie pentru implica]iile asupra colectivit\]ii na]ionale. Concep]ia francez\ se vrea mai„`mp\ciuitoare“ `ntre diferitele p\r]i interesate. Contabilitatea american\, cu o clasificare a cheltuielilor dup\destina]ie, sÀa transformat foarte rapid ̀ n gestionare, ̀ n timp ce contabilitatea francez\ este ̀ n continuare marcat\de cunoa[terea valorii patrimoniului.

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UNIT FOUR

MODULE III

ANSWER KEY

2.1.Current assets: 1, 12.Owners’ equity: 2, 9, 16.Liabilities: 3, 11.Expenses: 4, 5, 14, 15.Fixed assets: 6, 13.Revenue: 7, 8.Intangible Asset: 10.Accrued expenses: 17.

2.2. Balance sheet: 1, 2, 3, 6, 9, 10, 11, 12, 13, 16, 17.

2.3.1. for; 2. to; 3. on; 4. on; 5. on; 6. to; 7. by; 8. under; 9. per; 10. from; 11. to; 12. to; 13. under; 14. over;

15. at; 16. of; 17. to; 18. over; 19. in; 20. in.

2.4.1. balance sheet; liabilities; owners’ equity.2. current assets; fixed assets.3. inventories; receivables.4. depreciation.5. liabilities.

3.1.a. When I arrived at the railway station half hour late, I found that the train had already left.b. I was told that I had to wait an hour for the next one.c. While I was waiting in the restaurant I (saw) a friend of mine.d. It turned out that he, too, was going to Bra[ov.e. He said he was going on business and would/was going to be there about a week.f. I was glad that I had missed the train; for if I had caught it, I wouldn’t have seen my friend.

3.2. Suggested answers:1. When she returned from her business trip the sales manager asked if there were any letters for

her.2. Our accountant said he was broke. The financial manager offered to lend him some money.3. Our security man said he often saw lights late at night, after working hours, in the office building

across the road and asked if I thought he should report it.


4. The secretary asked him to ring back in half an hour.5. My fiancée urged me to apply for the job as it would just suit me.6. One of my friends warned me not to keep my money in the drawer. Another one advised me to

open a bank account.

3.3.1. He told me not to smoke in the Dean’s office if I didn’t want to get into trouble.2. The boss asked me why I didn’t work harder, and said I would regret it later.3. My sister-in-law’s friend told me she could never remember where she had her glasses and that

was driving her crazy.4. The Prime Minister declared that he would go to the Brussels summit if his commitments

allowed him.5. She wondered whether they would ever meet again, but she assured him that she would help

him if it was necessary.

4.2.1. BS 10. BS2. BS 11. BS3. BS 12. BS4. IS 13. BS5. IS 14. IS6. BS 15. IS7. IS 16. BS8. IS 17. BS9. BS

4.3.1. Net Sales; 4; Cost of Goods Sold; 8. Sales Salaries; 9. Advertising; 11. Interest Expense; 12. Insurance.

4.4. Tentative answer:

British American RomanianAnnual General Meeting (AGM) Annual Stockholders Meeting adunarea general\ a

ac]ionarilor (AGA)Articles of Association Bylaws statutul societ\]iiauthorized share capital authorized capital stock capital social subscrisbarometer stock bellweather stock ac]iune barometru/care

conduce emisiuneabase rate prime rate rat\ de baz\bonus/scrip/capitalization issue stock dividend/stock split emisiune de capitalizare,

dividende `n ac]iunibridging loan bridge loan `mprumut punte, pe termen

scurtbuilding society saving and loan association/”thrift” societate financiar\ de

investi]iicheque check carnet de cecuri/cec

Business Issues106

British American Romaniancompany corporation firm\/societate/companiecreditors accounts payable conturi creditoarecurrent account checking account cont curentdebtors accounts receivable conturi debitoaregilts/gilt-edged stock Treasury bonds bonuri de tezaurlabour labor munc\ fizic\; for]\ de

munc\Memorandum of Association Certificate of Incorporation contract de asocieremerchant bank investment bank banc\ de investi]iiordinary share common stock ac]iuni obi[nuite, ordinareoverheads overhead costuri administrative, de

regieprofit and loss account income statement cont de venituri [I

cheltuieliproperty real estate proprietate (cl\diri [i/sau

terenuri)quoted company listed company companie cotat\ la burs\retail price index (rpi) consumer price index (cpi) indicatorul pre]ului cu

am\nuntul la consumatorshare stock ac]iuneshare premium paid-in surplus prim\ de ac]iune, diferen]a

dintre valoarea de pia]\ [Ivaloarea nominal\

shareholder stockholder ac]ionarshareholder’s equity stockholder’s equity capitalul ac]ionarilorstock inventory obiecte de inventartrade union labor union sindicatunit trust mutual funds fonduri mutualevisible trade merchandise trade comer] vizibil de m\rfuri

4.6. Suggested answer:The two major accountancy schools: the Anglo-Saxon one and the French (also called continental)

one have their origin, among others, in difference of culture and civilization. The Anglo-Saxons value informationnecessary for the decision-making process of investors based on the principles of liberalism according towhich little consideration is given to the consequences to the national community. The French conceptionwants to be more “conciliatory” among the interested parties. American accountancy, with a breakdown ofcosts according to their destination, has rapidly changed into accounting management, while French accountancyis still marked by knowing the value of patrimony.

UNIT FOUR – Accounting

Documents

Transcript of UNIT FOUR – Accounting