Accounting shows a financial picture of the firm. An accounting department records and measures the activity of a business. It reports on the effects of the transactions on the firms financial condition. Accounting records give very important data. It is used by management, stockholders, creditors, independent analysts, banks and government.
Most businesses prepare regularly the two types of records. That is the income statement and balance sheet. These statements show how money was received and spent by the company.
One major tool for the analysis of accounting records is ratio analysis. A ratio analysis is the relationship of two figures. In finance we operate with three main categories of ratios. Оne ratio deals with profitability, for example, the Return on Investment Ratio. It is used as a measure of a firms operating efficiency.
The second set of ratios deals with assets and liabilities. It helps a company to evaluate its current financial position. The third set of ratios deals with the overall financial structure of the company. It analyses the value of the ownership of the firm.
accounting бухгалтерський облік
record документ, нотатка, протокол
to record нотувати, реєструвати
to measure вимірювати
transaction угода, банківська операція
firm's financial condition фінансовий стан фірми
to provide data надавати дані
income statement звіт про прибутки
balance sheet балансовий звіт
to receive отримувати
to spend витрачати
ratio analysis аналіз коефіцієнтів
Return on Investment Ratio коефіцієнт повернення інвестицій
efficiency ефективність, продуктивність
to evaluate оцінювати
value цінність, вартість
overall financial structure повна фінансова структура
1. What is the purpose of accounting?
2. Who uses the data provided by accounting firms?
3. What are the two types of records which most businesses prepare?
4. What can you know analyzing the income statement and balance sheet of a company?
5. What is the purpose of the ratio analysis?
6. What categories of ratios in finance do you know?
Exercise 1. Choose the necessary word and put it in the sentence.
1. An accounting helps... the activity of a business. 1 to profit
2. Do you know the effect of your last...on financial condition
of the firm? 2 profit
3. Accounting records provide ... for stock-holders,
independent analysts. 3 efficiency
4. The second type of ratio helps the company ... its current
financial position. 4 ownership
5.... is one the two main records which most of the businesses
prepare regularly. 5 to evaluate
6. The ... of the company includes real estate in California. 6 transaction
7.1 am sure of the ... of this transaction. 7 data
8. Our company's current... is very high. 8 income statement
9. They ... from the association with that corporation. 9 to measure
(Peter and Karen work in a large company. They are having dinner in the company cafe).
Peter Hi, Karen. Glad to meet you. You looked very busy this morning. There were
so many statements on your table.
Karen Oh, Peter. This is the end of the year. The accounting department is very busy.
Peter I know. We are all very busy, totaling accounts. But I've already turned in the
report on my department.
Peter So, how's business.
Karen I don't know everything. I am busy with some records and statements. I don't
have the whole picture. But I think the company is doing very well.
Peter I am sure of it. We have to keep our creditors and investors happy.
Karen Well, the balance sheet and profit and loss statement are ready. It is the end
of the fiscal year. So everybody can check out the assets and liabilities, net
worth and profit position of the company in the financial statements.
Peter Do you work with the pay checks?
Karen Why are you asking?
Peter I thought you could explain me the big difference between my gross pay and
my net take-home pay.