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 record measures the activity of a business and
reports on the effects of transactions on the firm’s financial condition.
2.
Who
uses the data which is provided by accounting records?
The
data which is provided by accounting records is 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
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?
It is
used for evaluating a company’s current financial position.
B.
Choose
the correct word available to complete the following sentences.
·
Record
(N)
·
Record
(V)
·
Report
(N)
·
Report
(V)
·
Profit
(N)
·
Profit
(V)
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(Debtors)
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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