U N I T 2. A C C O U N T I N G
Objectives: after having studied this Unit you will be able to:
–understand the purpose and kinds of accounting;
–describe the users and uses of financial information;
–distinguish between financial and management accounting.
SECTION I
VOCABULARY FOCUS
Task 1. Read the definitions of the following words and give their Russian equivalents:
Accounting: The recording, classifying, summarizing, and interpreting of those business activities that can be expressed in monetary terms. Accountancy is sometimes used especially for the practice of accounting.
Bookkeeping: The systematic recording of financial information. The bookkeeper’s job is to keep an accurate record of financial data.
Management: The planning and direction of the policy and operations of a business. It can be applied to the people who carry out the functions of management.
Audit: A review of an organization’s financial records by an accountant. A person who performs an audit is an auditor.
Managerial accounting: A branch of accounting that deals with fiscal reports which are particularly useful to management in establishing operating policies for an organization (provides information for internal users).
READING AND DISCUSSION
Task 1. Read the text below and answer the question: What is the subject of accounting?
Task 2. Consider the title of the text.
Could you describe briefly what you think the purpose of accounting is? Scan the first paragraph of the text quickly to find out whether you are right or wrong.
TEXT A. THE LANGUAGE OF BUSINESS
Accounting is the process by which financial information is provided for those who require it. It measures economic events and presents this information to users. You
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can see that accounting is a form of service. It is often called the language of business. It permits users of that information to make informed judgements and decisions. Users of economic information require this knowledge to help them decide how best to allocate their resources. As a rule, resources are generally scarce in relation to needs, and so users rely on accounting reports to ensure the efficient and effective allocation of supplies.
Accounting is used in the business world to describe the transactions entered into by all kinds of organizations. Accountants do their best to translate business reality into a set of financial statements. Why do they do that? Because various people want to know what is happening to businesses, and they find it convenient to study financial statements in their offices as a way of finding out what is going on. Accounting acts as a valuable aid to business people. That’s why it is necessary to establish clearly who the major users of financial information are and what their needs are.
Task 3. Answer these questions.
1.What is accounting?
2.What does accounting provide people with?
3.What is financial information required for?
4.Who aids the management to take right decisions in running a business?
5.Who, do you think, may be the major users of financial information?
6.What can users of economic information rely on to allocate supplies effectively?
Task 4. Complete the following sentences:
1.An accountant helps …
2.Accounting provides…
3.Accounting describes …
4.Financial statements find out …
5.Financial information is provided at …
Task 5. Read Text B and find the basis of subdivision of the users into the main categories. Define the difference between them.
Text B. USERS OF ACCOUNTING INFORMATION
In the world of business it is possible to classify users of accounting information into two major groups –– external and internal users. Users within each group are considered to have very similar, or the same, information needs. Some of the major users of accounting information are: 1) owners of businesses, 2) lenders of money, such as banks, 3) suppliers of goods and services, 4) managers of a business, 5) customers of
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a business, 6) employees, 7) governments, 8) the public, 9) competitors.
Lenders are banks, financial companies who need to know how much money the organization already has, how much it owes to others and if it owns anything what can be used as security for unpaid debts.
Suppliers of goods and services need to be sure that their bills will be met.
Tax authorities need to know how much profit the organization has made and how much tax National Insurance is to deduct from its employees’ wages.
Owners might need an overview of the state of the organization (its profits, liabilities, and cash).
A buyer or a new partner might need to know the value of items, which the business owns, its profit in the past.
Financial analysts and advisers will require information for potential investors or to provide statistical data for publication or for government.
Internal users include managers and owners who work in the business. They require information about all the items mentioned for external users. Moreover, they need detailed information on the day-to day transactions and the different aspects, such as cost incurred by individual departments or products.
Employees need to be assured of the security of their jobs.
Task 6. Answer these questions:
1.Who needs to know how much profit the organization has made?
2.What categories of users need financial information?
3.What kinds of accounting do you know?
4.What does a buyer need to know?
5.What is a potential investor eager to know?
6.What do managers need detailed financial information for?
7.What categories of users need financial information?
Task 7. Say whether the following statements are true or false. Comment on the true statements and correct the false ones.
1.The users of accounting information are divided into three main categories.
2.Tax authorities need to know how much money the business owes to other businesses.
3.Owners need financial information to learn about weak spots of their business.
4.Internal users include lenders, owners, and creditors.
5.Employers need to be assured of the security of their jobs.
6.Management accounting is concerned with providing information for external users.
7.Management accounts are expressed only in monetary terms.
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8. According to the text the task of examining and analysing accounts isn’t important at present because economic management doesn’t need that kind of information.
9. The key problem facing accountants is recording business transactions in books of accounts.
10. Broadly speaking economic information doesn’t reflect the real state of things in an enterprise.
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Task 8. Combine the proper parts of the sentences: |
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1. |
Internal users… a) ... to know how much money the organization already has. |
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2. |
Employees need… b) ...to translate business reality into a set of statements. |
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3. |
Financial accounts… c) …include managers and owners who work in business. |
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4. |
External users need… d) …financial information for those who require it. |
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5. |
Managerial accounting… |
e) …to study financial statements in their offices. |
6. |
They find it convenient… |
f) …are expressed in monetary terms. |
7. |
Accountants do their best… g) …to be assured of the security of their jobs. |
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8. |
Accounting provides….… |
h) ….provides information for internal users. |
Task 9. What idea is illustrated by the following statements?
1.The accountant acts as an adviser to the management and helps the latter in decisionmaking.
2.The accountant is responsible for analysing business activity.
Task 10. Give extended answers to the following questions.
1.What can you tell about external users of fiscal information?
2.Who are users of accounting information?
3.What kinds of accounting do you know according to external and internal use of financial information?
4.What kind of information do internal users need?
SECTION II
Task 1. Read the text and explain the main difference between:
1.financial and managerial accounting;
2.public, private and governmental accounting.
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TEXT A. ACCOUNTING IN BUSINESS REALITY
Two kinds of accounting are distinguished:
Financial accounting is concerned with providing information for external users (usually annually or quarterly). The common method of providing such information is through the trading and profit and loss account, the balance sheet and the cash flow statement.
Management accounting is concerned with providing information for internal users. It is often used as a basis for future forecasts. An accountant aids the management to select the best plan of actions for the business. It is more detailed and is provided at frequent intervals. Financial accounts are expressed in monetary terms whereas management accounts might be expressed in monetary or non-monetary terms, such as number of units produced or number of hours.
The field of accounting is divided into three broad divisions: public, private and governmental.
Public accounting consists largely of auditing and tax services. An audit is a review of the financial records of an organization.
Many accountants work in governmental offices or for non-profit organizations. These two areas are joined together under the term governmental and institutional accounting. They are similar in the way they receive and spend funds. They tend to become specialists in limited fields like transportation or public utilities.
Private accountants handle the financial records of a business. Concerns and large corporations can employ hundreds of accountants.
Task 2. Answer these questions:
1.What areas is the field of accounting divided into?
2.What kind of information is required by managers?
3.Is there any difference between management and financial accounting?
4.Describe the job of the public accountant. What are his/her duties?
5.Why do businesses often need services of a public accountant?
6.Where do governmental accountants work?
7.What is a nonprofit organization?
8.What is the job of private accountants?
Task 3. Say whether the following statements are true or false. Comment on the true statements and correct the false ones.
1.The efficient allocation of resources requires the use of reliable information.
2.Being a form of service accounting helps users to make informed decisions.
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