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The Accounting Equation as a Conservation Principle
Accounting measurements reflect the changes in the composition of a firm’s assets, liabilities and equity, subject to the conservation rule reflected in the fundamental equation. The conservation rule is simply that any net change up or down in a firm’s assets must be offset by an equal change to the combination of liabilities and equity. If there is an increase in assets, there must be an increase in the total of liabilities and equity. If there is a decrease in assets, there must be a decrease in the total of liabilities and equity. The teeter totter must always be balanced.
Task 4: What can you see in the pictures?
A.
B.
Task 5: Learn the following words and word-combinations.
| 1. | current assets / circulating floating assets | поточні оборотні активи (фонди, кошти) |
| 2. | fixed capital / permanent assets | основний капітал, фонди |
| 3. | intangible assets | нематеріальні активи |
| 4. | liquid or available assets | ліквідні активи |
| 5. | net assets | чисті /нетто активи |
| 6. | net current assets / working capital | чисті поточні активи, оборотний капітал |
| 7. | wasting assets | «виснажливі» активи |
Task 6: Match the terms from task 5 with the definitions below. Use them to label the drawings from task 4.
1. ………. are anything that can be turned into cash.
2. ………. are the excess of current assets (such as cash, inventories, debtors) over current liabilities (creditors, overdrafts, ets.).
3. ………. are those which are gradually exhausted (used up) in production and cannot be replaced.
4. ……… are those which will be consumed or turned into cash in the ordinary course of business.
5. ……… are those whose value can only be quantified or turned into cash with difficulty, such as goodwill, patents, copyrights and trade marks.
6. ………, or shareholders’ equity, on a business’s balance sheet, is assets minus liabilities (which is generally equal to fixed assetsзplus the difference between current assets and current liabilities).
7. ………, such as land, buildings and machines, cannot be sold or turned into cash, as they are required for making and selling the firm’s products.
Task 7. Read and study the following words and definitions. Be ready for the dictation.
| 1. | Accounting system | The methods used to record and summarize accounting data into reports. |
| 2. | Assets | Economic resources owned by a firm, such a land, buildings, machinery. |
| 3. | Bookkeeping | The recording of business transactions. |
| 4. | Cash flow | The difference between cash receipts and cash disbursements (використання,). |
| 5. | Certificate public accountant | Accountants who pass a series of examinations and meet the state’s requirements for education and experience (in the USA). |
| 6. | Cost of goods sold (or cost of goods manufactured) | A particular type of expense measured by the total cost of merchandise sold (including costs associated with the acquisition, storage, transportation in, and packaging of goods). |
| 7. | Depreciation | The systematic write off of the value of an asset. |
| 8. | Expenses | Costs incurred in operating the business, such as rent, utilities, and salaries. |
| 9. | Fundamental accounting equation | Assets = liabilities + owner’s equity; it is the basis for the balance sheet |
| 10. | Gross margin (profit) Margin - запас (часу, грошей) | Net sales minus cost of goods sold |
| 11. | Journals | Recording devices used for the first recording of all transactions |
| 12. | Ledger | Recording device in which information from accounting journals is categorized into homogeneous groups and posted so that managers can find all the information about one account in the same place. |
| 13. | Liabilities | Amounts owed by the organization to others. Current liabilities are due in 1 year or less, long-term liabilities are not due within one year. |
| 14. | Net income | Revenue minus expenses. |
| 15. | Net sales | Sales revenue minus discounts, returns, and other adjustments made for customers. adjustments - погодження, пристосування |
| 15. | Owner’s equity | Assets minus liabilities. |
| 16. | Private accountant | Accountant who works for a single company. |
| 17. | Public accountant | Accountant who provides services for a fee to a number of companies; he can conduct independent audits. |
| 18. | Revenue | The value of what is received for goods sold, services rendered, and other sources. |
| 19. | Statement of changes in cash flow | Report of cash receipts and disbursements related to the firm’s major activities: operations, investments, and financing. |
| 20. | Income statement | Financial statement which reports revenues and expenses over a specific period of time, showing the results of operations during that period. It summarizes all resources that came into the firm (revenues), and all the resources that left the firm and the resulting net income. |
| 21. | feedstock | the main raw material used in the manufacture of a product (raw materials) |
Task 8: Work with dictionaries:
a. find the proper Ukrainian equivalent to the term in the chart using the Ukrainian text below;
b. translate the text into English using the chart above.
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