Comprehension. Discovering connections

Text 1

READING

DISCOVERING CONNECTIONS

ACCOUNTING

1. Do you know what accounting is?

2. What is the view on accountancy as a job in your country? How important is accountancy for running business?

3. What particular skills do you think an accountant needs? Do you possess the skills like that?

4. Do you find this job prestigious or do you think it is rather boring to deal with figures.

The author organizes the following reading by showing the difference between bookkeeping and accounting. As you read, focus on this point and pay attention to the functions of accounting.

What is Accounting?

Accounting is the process by which the profitability and solvency of the company can be measured. It also provides information needed as a basis for making decisions, that will enable management to guide the company on a profitable and solvent course.

The range of those who use accounting information is not limited by businesses only. It also includes:

Individuals. People use accounting information in day-to-day affairs to manage their bank accounts, to evaluate job prospects, to make investments, and to decide whether to rent or to buy a house.

Investors and Creditors. Investors provide the money that businesses need to begin operations. To decide whether to help start a new venture, potential investors evaluate what income they can reasonably expect on their investment.

Government Regulatory Agencies base their regulatory activity on the accounting information they receive from firms.

Taxing Authorities. Local, state, and federal governments levy taxes on individuals and businesses using the accounting information they present.

Non-profit Organisations such as churches, most hospitals, government agencies, and colleges, which operate for purposes other than to earn a profit – use accounting information in much the same way that profit-oriented businesses do.

The methods used by a business to keep records of its financial activities and to summarize these activities in periodic accounting reports comprise the accounting system.

The first function of an accounting system is creating information, that is a systematic record of the daily business activity. It is carried out by means of recording, classifying and summarizing information.

The second function of an accounting system is communicating the summarizedinformation to interested parties.

The third function is interpreting the accounting information as it relates to specific business decisions.

In accounting, business activities are associated with transactions. A transaction occurs whenever the firm enters into a legal contract for the acquisition of means of production or the sale of goods and services.

Transactions between the firm and its markets - both its supply markets and its selling markets – are defined as “external transactions”. Transactions within the firm, consisting of the exchanges which occur between the various departments are defined as “ internal transactions”. The totality of “internal transactions” forms the subject matter of cost or managerial accounting. The main task of managerial accounting ispreparing budgets and other financial reports necessary for management. Cost accounting deals with working out the unit cost of products, including materials, labour and all other expenses. Other types of accounting are tax accounting and creative accounting. Tax accounting is used for calculating an individual's or a company's liability for tax. Creative accounting uses all available accounting procedures and tricks, to disguise the true financial position of a company.

Persons with little knowledge of accounting may fail to understand the difference between accounting and bookkeeping.

Bookkeeping means the recording of transactions, the record-making phase of accounting. The recording of transactions tends to be mechanical and repetitive, it is only a small part of the field of accounting and probably the simplest.

Accounting includes the design of accounting systems, preparation of financial statements, audits, cost studies, development of forecasts, income tax work, computer applications to accounting processes, and the analysis and interpretation of accounting information as an aid to making business decisions. A person might become a reasonable proficient bookkeeper in a few weeks or months, however, to become a professional accountant requires several years of study and experience.

Vocabulary Focus

Ex. 1. Study the difference between the following synonyms. Then use them in the sentences that follow.

Evaluate. If you evaluate something you decide on its significance, value, or quality after carefully studying its good and bad features.

Estimate. If you estimate an amount or quality you calculate it approximately, you make judgment about it based on the available evidence.

Appreciate. If you appreciate something, for example a piece of music or good food, you recognize and understand the good qualities or features that it has and like or admire it because of them.

a. They meet monthly to discuss policy and... the current political situation.

b. They really... the peace and quiet of rural Wales.

c. The hurricane caused damage... at 300 mln pounds.

d. How would you... our chances?

e. He is the kind of individual that's very hard to....

f. The lawyers... the property at 90 thousand pounds.

g. The builder... the cost of repairing of roof at 600 pounds.

h. It can explain why actual costs varied from cost....

i. I would... the size of the garden at 1000 square metres.

Ex. 2. Choose the right definition from column B to the words and expressions from column A.

A	B
1) bookkeeping	a) calculating an individual's or a company's liability for tax
2) accounting	b) writing down the details of transactions (debits and credits)
3) managerial accounting	c) keeping financial records, recording income and expenditure, valuing assets and liabilities, and so on
4) cost accounting	d) preparing budgets and other financial reports necessary for management
5) tax accounting	e) inspection and evaluation of accounts by a second set of accountants
6) auditing	f) using all available accounting procedures and tricks, to disguise the true financial position of a company
7) creative accounting	g) working out the unit cost of products, including materials, labour and all other expenses

Ex. 3. Choose the right variant from the words given below.

The purpose of ________ is to provide financial information about the economic entity. 2. The _________ of creating accounting information are recording, classifying and summarizing. 3. Financial information provided by an accountant is needed by managerial ________ ________ to help them plan the company’s activities. 4. The purpose of each business to earn ________. 5. Every economic entity should stay _______, that is to have sufficient cash to play debts. 6. The company that is unable to meet its obligations is called _______. 7. To meet _______ of our society we need some knowledge of accounting.

Words for reference: challenge; insolvent; profit; makers; solvent; decision; means; accounting.

Ex. 4. Find the sentences with the following expressions in the text and translate them into Russian.

Managerial accounting, external transaction, taxing authorities, levy taxes (on), legal contract, non-profit organisations, financial statement, audit, cost accounting, creative accounting, bookkeeping.

Ex. 1. Answer the questions.

1. What is the definition of accounting?

2. What information does accounting provide business entities with?

3. Who are the users of accounting information? Why do they need it?

4. What are the functions of accounting??

5. What means are used for creating information?

6. What are business activities in accounting associated with?

7. What is the difference between external and internal transactions?

8. What are the subjects of managerial, cost, tax and creative accounting?

9. What is the difference between accounting and bookkeeping?

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