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Accounting Information

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Accounting provides informational access to a company’s financial condition for three broad interest groups. First, it gives the company’s management the information to evaluate financial performance over a previous period of time, and to make decisions regarding the future. Second, it informs the general public, and in particular those who are interested in buying its stock, about the financial position of the company. Third, accounting provides reports for the tax and regulatory department’s of the government. In general, accounting information can be classified into two main categories: financial accounting (or public information) and managerial accounting (or private information).

Managerial accounting deals with cost and profit relationships, efficiency and productivity, planning and control, pricing decisions, capital budgeting, etc. Not being generally spread outside the company, this information provides a wide variety of specialized reports for division managers, department heads, and project directors.

A standard set of financial accounting and published in an annual report at the end of the fiscal year. Being prepared in accordance with generally accepted accounting principles, these statements include the following items: 1) the balance sheet, 2) the statement of cash flows, 3) the income statement, 4) the statement of retained earnings.

Information relating to the financial position of company, mainly about assets and liabilities, is presented in balance sheet. The statement of cash flows shows the changes in the company’s financial position and provides information which is not available in either an income statement or a balance sheet. Thus, the statement of cash flows represents the sources and the uses of the company’s funds for operating activities, applications of working capital and data about additional financial support. Provided the company couldn’t generate sufficient cash to finance its activities, it would be necessary to borrow money and it should be indicated in the statement.

Another financial statement disclosing the result of the company’s activity is known as the income and expense statement. Prepared for a defined time interval, this statement summarizes the company’s revenues, expenses, gains and losses and shows whether a company has made a profit within the period. Income is considered to be a difference between revenues and expenses. If the total expenses exceeded the total revenues during the period, the difference would the net loss of the company. Revenues are transactions that represent the inflow of assets as a result of operations-that is, the assets received from selling goods and rendering services. Expenses are transactions involving the outflow of assets in order to generate revenue, such as wages, salaries, rent, interest and taxes. In addition to disclosing revenues and expenses, the income statement also lists gains and losses from other kinds of transactions such as the sale of plant assets or the payments of long-term liabilities.

The income statement excludes the amount of assets withdrawn by the owners, in a corporation such withdrawal of assets being called dividends.

The separate statement of retained earnings and stockholder’s equity shows investors what has happened to their ownership in the company, how earnings and new stock issuance have increased its value, and what dividends were paid.

Each of these reports contains figures for previous years and for the current period, providing a way of comparing present and past company performance. Being prepared for the use of management, the financial statements contain neither debit nor credit columns. These statements are accompanied by additional data about the particular accounting method used, as well as explanations about the most important events within the previous year.

3. Answer the questions to the text Accounting Information.

1. Who is interested in accounting information?

2. What are the main differences between financial and managerial accounting?

3. What financial statements are included in an annual report and when are the published?

4. What information can stockholders get from the balance sheet?

5. Why is it important to prepare the statement of a company’s cash flows?

6. What kind of information is represented in the income statement?

7. How can revenues and expenses be defined?

8. What statement shows the amount of a stockholder’s dividends?

9. Why is it necessary to prepare additional reports?

10. What statement contains debit and credit columns?

4. Translate the following statements into Ukrainian, paying attention to the words and words combinations from Vocabulary to the text Accounting Information.

1. Accounting provides information for different purposes through the maintenance of files of data, analysis and interpretation of these data and preparation of various kinds of reports.

2. The reports to be prepared for investors are called financial statements, their preparation being the task of financial accounting.

3. It is necessary that balance sheet should disclose the resources that are under a company’s control on a specified data and indicate where revenues have come from.

4. Being shown in the income statement for a particular time period, net income is the accountant’s term for the amount of profit.

5. The company’s success is measured by the amount of profit it earns, that is, the growth or decrease in its stock of assets from all sources except contributions or funds withdrawn by owners and creditors.

6. The purpose of the statement of cash flows is to explain management’s use of the financial resources available to it and to help in evaluating the company’s liquidity and its ability to pay its bills.

7. While net income increases retained earnings, net operating loss or the distribution of cash dividends reduces it.

8. To enable users to interpret statements with confidence, companies is similar industries should use the same measurement concepts and principles.

9. Most accounting data and reports are likely to be generated mainly for the company managers.

10. Preparations of data and reports either summarizing past events or disclosing forecasts of the future is expected to be the task of managerial accounting.


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