Discovering connections

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.

READING

Text 1

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.

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 that performs three functions. 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. Its second function is communicating the summarized information 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 management or cost accounting which provides information for managers to use for running their company. It is the recording and controlling of all the expenditures of an enterprise in order to facilitate control of separate activities

The totality of “external transactions” forms the subject matter of financial accounting which is used to deal with the world outside the organization. This external financial accounting reports financial conditions to stockholders, employees, banks and other financial institutions, and to the government, when required. External reporting is especially important to corporations that must send financial statements to owners, potential investors, brokers, stock exchangers, regulatory agencies, tax authorities and others.

Sometimes companies turn to creative accounting that comprises all available accounting procedures and tricks to disguise the true financial position of a company.

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.

Tax authorities. Local, state, and federal governments levy taxes on individuals and businesses using the accounting information they present, thus tax accounting is used for calculating an individual's or a company's liability for tax.

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.

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.

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

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

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

4. How would you... our chances?

5. He is the kind of individual that's very hardto....

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

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

8. It can explain why actual costs varied from costs....

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

Ex. 2. Complete the table by inserting the missing forms if possible.

Ex. 3. Choose the right definition from column B to the words and expressions from column A.

Ex. 4. Match the Russian word combinations with their English equivalents.

Ex. 5. 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 is to earn _______. 5. Every economic entity should stay _ ____, that is to have sufficient cash to pay 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; solvent; decision makers; means; accounting.

Ex. 6. Find the sentences with the following expressions in the text and translate them into Russian.

Management accounting, external transactions, tax authorities, legal contract, non-profit organisations, financial statement, audit, cost accounting, creative accounting, bookkeeping.