A. Read the text, give the English equivalents for the words in brackets, and single out the main items of the income statement.

  The purpose of (the income statement) (sometimes called the earnings statement) is to report upon (the profitability) of a business organization for a stated period of time. In accounting, profitability is measured by comparing the revenues generated in a period with the expenses incurred to produce those (revenues). Revenue is defined as (the inflow of assets) resulting from the delivery of products or (the rendering) to customers. Many firms earn their revenues by selling their customers (tangible products), such as automobiles, office equipment, cameras, or paint. Others, called service firms or businesses, earn their revenues in the form of (fees or commissions) by rendering various types of services to customers, such as the fees for the professional services rendered by accountants, architects, lawyers, or physicians or commissions from the sale of(life, property, and casualty insurance) or (real estate). Other types of services generate revenues for other firms – (the interest earned) by banks and small (loan companies), the premiums received by (insurance companies), the admissions charged by theatres, or the rents collected by firms (owning) apartment buildings. The revenues earned are measured by (the value of the assets) customers are willing to surrender for the products or services received.

Expense is defined as the (sacrifice) made or the cost incurred (to generate revenues). The expenses incurred can be classified into a number of categories that differ among firms. Common expense categories are (wages and salaries), (utilities) (electricity, gas, oil, telephone, and water), insurance, taxes (both on property and on income or earnings), supplies used, (advertising), and interest. Expense is measured by the cost of the assets surrendered or consumed in serving customers. The process of comparing the revenues earned with the expenses incurred is referred to as matching. Expenses are matched against revenues (to determine net income). If revenues (exceed) expenses, net income results. If the reverse is true, the business is operating at a loss.

In a technical sense, the income statement is subordinate to the balance sheet. This is because it shows in some detail the items that collectively (account for) most of the period’s net change in only one balance sheet item, (retained earnings). (“Most” excludes dividends as well as a few relatively unusual retained earnings changes). Nevertheless, the information on the income statement is regarded by many to be more important than information on the balance sheet. This is because the income statement reports the results of operations and indicates reasons for (the entity’s profitabilty) (or lack thereof).

The importance of the income statement is illustrated by this fact: in situations where accountants, in recording an event, must choose between a procedure that (distorts) the balance sheet or one that (distorts) the income statement, they usually choose not (to distort) the income statement.

In practice, there is (a considerable variety) in the formats and degree of detail used in income statements. Less detailed income statements are published in (corporations’ annual reports) to their shareholders. Income statements prepared for the managers of an entity usually contain more detailed information.

The heading of a statement must show (1) the entity to which it relates, (2) the name of the statement, and (3) the time period covered. To provide the basis for comparison (the SEC, the USA) requires that corporate annual reports contain income statements for the most recent years and balance sheets as of the end of the most recent two years.

Illustration 5.1.

PROFF COMPANY

Income Statement

For the Month of July 200X

Illustration 5.1(contains) the statement of the PROFF Company for the Month of July 20XX. It shows that revenues in the amount of $5,700 were generated by serving customers. Expenses for the month (amounted to) $3,630, resulting in net income before taxes for the month of $2,070.

It is easy to determine from (a balance sheet) and (an income statement) whether the issuing company was a merchandiser or a manufacturer.

b. Consider the CONSOLIDATED INCOME STATEMENT given below. Match the English word combinations in the left-hand column with the Russian equivalents in the right-hand column:

CONSOLIDATED INCOME STATEMENT

For the sixth months ended in June 30, 200X

In EUR thousand