Exercise 1. Check the transcription in a dictionary, read and translate the words listed below.
77 – 78
south, overview, maintenance, Pacific depreciation, nightmare, advantage,
uncertainty, organization, fund, wildlife.
multinational, proverbial, nonprofit.
incur, deduct, delay, measure.
a) Pay attention to the negative prefix “non-” with nouns or adjectives where it shows negative “not”.
b) Translate the following sentences:
- He will refuse your cigarette, he is nonsmoker.
- Some countries declared their nonalliance to the pact.
- Nonconformists don’t follow ways of living accepted by most people.
- Sunday is a nonworking day.
- Nonliquid goods are produced but not sold.
- Nonpayment of taxes is punished by the law.
- There are public nonprofit organizations such as World Wildlife Fund.
WHAT IS A PROFIT AND LOSS STATEMENT?
Any enterprise from a major multinational corporation to a coconut juice stand in the South Pacific needs a summary of everything the company has earned and spent over a given period of time. This overview of a company's day-to-day activities is called an income statement or a profit and loss statement (P&L).
A company making and selling coconut juice on a South Pacific beach would start its P&L with a summary of all revenues from selling its product. To determine its profit, the company needs to subtract its expenses from its revenues. First, it would subtract the costs incurred in producing the juice, called "cost of goods sold. "Expenses such as salaries or maintenance of assets would also have to be accounted for. Other expenses, such as interest on loans, would then have to be deducted.
Finally, depreciation, the decline in value of fixed assets, such as machinery and tools, would have to be deducted from earnings. Depreciation causes numerous accounting nightmares because there is no way to determine how much a fixed asset really declines in value overtime.
Many companies take advantage of this uncertainty to show as much "loss" as possible as soon as possible, reducing earnings in order to pay less tax in the early 77 years of the asset's life. By delaying tax payments, companies can earn valuable interest on their retained earnings.
Once all expenses have been deducted from the revenues, a company can see its total profit or loss. This is the proverbial bottom line. It tells us how much the company's assets and liabilities changed over the course of the year.
Another tool for understanding a company's activity is to look at its cash flow. This measures the actual flow of funds—real money-flowing into and out of a company during a given period of time. A company's cash flow, or "cash summary, "factors out all of the accounting tricks and looks at what a company really earned. Even though it does not tell us the company's "profit", cash flow sometimes gives a clearer picture of a company's true earnings, because it excludes accounting tools such as depreciation.
Cash flows and profit and loss statements are essential for understanding the revenues, expenses, and profits of any organization, including nonprofit organizations such as the World Wildlife Fund or the United Nations. Even if profits are not distributed to shareholders, any organization needs a P&L to account for its activities to sec whether it is being efficiently and honestly run.