The Structure of a Balance Sheet

A company’s balance sheet consists of assets, liabilities and equity. Assets represent things of value that a company owns and has in its possession or something that will be received and can be measured objectively. Liabilities are what company owes to others –creditors, suppliers, tax authorities, employees etc. they are obligations that must be paid under certain conditions and time limits. A company’s equity represents retained earnings and funds contributed by its shareholders who accept the ownership risk in exchange for what they hope will be a good return on their investment.

The relationship of these items is expressed in the fundamental balance sheet equation:

Assets = Liabilities + Equity

The meaning of this equation is important. Generally sales growth dictates a larger asset base – higher levels of inventory, receivables and fixed assets. As a company’s assets grow, its liabilities and/or equity also grow, and the financial position remains in balance.

Growth in payables, debt liabilities and equity reveals a lot about a company’s financial health. One can say that depending on a company’s line of business and industry characteristics, possessing a reasonable mix of liabilities and equity is a sign of a financially healthy company.

 

б) Ответьте на вопросы.

1. What are the major components of the balance sheet?
2. What two categories of assets are shown on the balance sheet?
3. What do liabilities include?
4. What is shown in the equity section?
5. What risks do shareholders take?
6. What is the meaning of the balance sheet equation?
7. What does sales growth result in?

 

Ex.14. Заполните пропуски словами из рамки.

 

sources, position, loans, contributed, owns, obtains

 

The balance sheet is like a snapshot taken at a particular moment in time giving a summary of the financial ___ of a business. Businesses have to use assets to generate money. Assets are the things that a business ___ or sums that are owed to the business ___ or sums that are owed to the business at any one moment time.

The business ___ the finance for these assets from two main ___:

1. Internally (inside the business) from capital ___ by the business owners (the shareholders in the case of a company).

2. Externally – for example, in the form of ___, and other forms of finance which will have to be repaid.

 

Ex.15. Заполните пропуски предлогами, где необходимо.

 

1. Let’s compare the retained earnings of this year ___ the figures of the previous year.
2. The horizontal layout underlines the balance ___ assets and liabilities.
3. The balance sheet is divided ___ two parts.
4. Both parts of the balance sheet are always … balance.
5. In the accounts receivable accountants list all claim ___ others which are to be collected.
6. The vertical format makes comparisons ___ other years easier.
7. The company has increased its inventory ___ $5.000.
8. Shareholders’ funds are owed ___ shareholders.
9. Many local businesses contributed ___ the school fund.
10. They converted their money from pounds ___ euro.
11. A balance sheet usually appears ___ a vertical format.
12. They expect a good return ___ their investments.
13. This situation looks similar ___ ours.

 

Ex.14. Заполните пропуски артиклями, где необходимо.

 

1. Assets are valuable that ___ company owns or something that can be received.
2. Liabilities are what ___ company owes to outsiders.
3. They hope that they will have ___ good return on their investments.
4. It’s necessary to have ___ reasonable mix of liabilities and equity.
5. ___ high level of debt can be risky for any business.
6. ___ balance sheet represents ___ company’s financial position for one day at its fiscal year end.
7. This year there has been no change in ___ owners’ equity.
8. Companies must include ___ accumulated depreciation in balance sheet.

 

 

Lesson 6

Texts: Text A: The Income Statement

Text B: What does the Income Statement show?

Text A

The Income Statement

The income statement tells you whether the company is making a profit, that is, it has positive net income. (It is also called a profit and loss account and an operating statement). It shows a company’s profitability for a specific period of time – monthly, quarterly, and annually.

How does an income statement present this profitability picture?

The income statement is a report that presents revenue, expenses and net income or net loss for a business for a period of time.

The income statement is divided into two parts. The first part is known as the «heading» and the second part as the «body» of thereport. The heading of the income statement answers three questions:

Whose business is it?

What statement is it?

What period does it cover?

The body of the income statement lists revenues and expenses. A comparison of these two items will show either net income or net loss. When total revenue exceeds total expenses, the excess represents the net income. When the total expenses exceed the total revenue, the difference represents a net loss.

 

The Income Statement
Smith Car Rental Service Income Statement For the Year Ended December 31,2008
Revenue: Car Rental Expenses: Repairs Expense Salaries Expense Gas and Oil Expense Insurance Expense Total Expenses Net income:	$2,350 64,500 4,000 3,000	$124,000   73,850 50,150

The date assigned to the income statement covers a period of time. This is true of all income statements regardless of whether they are prepared for an accounting period or on an interim basis.

Text B