F. Test your ability to assign specific assets to various categories.

Here are 28 specific assets: traveler’s checks, tables, truck, calculator, computers, lamp, pencils, typing paper, chairs, stationery, wrapping paper, automobiles, coins, vans, money in bank, light bulbs, desk, correction fluid, currency, staplers, showcases, folders, removable cartridge, facsimile, lorry, files, computer disks, overhead projector, shredder.

 

Place each of these assets under the appropriate specific asset category heading in the following form:

Cash	Furniture and Fixtures	Delivery equipment	Office equipment	Office supplies
traveler’s checks	tables	truck	typewriter	pencils
Coins	lamp	automobiles	adding machine	typing paper
money in bank	Chairs		computers	stationery
currency	desk		facsimile	wrapping paper
	showcases			desk blotters
				light bulbs
				correction fluid
				typewriter ribbon
				computer disks

1. What is the difference between office supplies and office equipment?

(Supplies are expected to be used up within less than 1 year. Equipment usually has a useful life in excess of 1 year.)

2. Why is a typewriter ribbon considered an office supply, even though it is an integral part of the typewriter? (As a supply it will be used up in less than 1 year.)

3. What type of asset (short-life or long-life) is a supply? (Short-life)

4. What type of asset (short-life or long-life) is a typewriter? (Long-life)

5. What type of asset (short-life or long life) is a computer disk? Why?

(A short-life asset. It is expected to be used up in that time.)

g. Place each of these 16 assets in the appropriate column of the following form:

Cash in bank, office equipment, First National City bonds, patents, accounts receivables, office supplies, notes receivables (due in 90 days), building, office machines, furniture and fixtures, mortgage notes receivables (due in 6 years), store equipment, petty cash, goodwill, factory supplies, and merchandise.

 

Current Asset	Investment	Intangible Asset	Plant asset
Cash in bank	First National City bonds	patents	office equipment
accounts receivables	mortgage notes receivables	goodwill	building
office supplies			office machines
notes receivables			furniture and fixtures
petty cash			store equipment
factory supplies
Merchandise

 

A. Read the text and supply the prepositions where necessary.

B. Explain the purpose of the financial statements described in the text.

The purpose of the statement of retained earnings is to explain the changes in retained earnings that occurred between two balance sheet dates. Usually, these changes consist of the addition of net income (or the deduction of net loss) and the deduction of dividends paid out.

If we assume that the PROFF Company’s net income for August was $1,500 (revenues of $5,600 less expenses of $4,100) and that it declared and paid dividends of $1,000. Its statement of retained earnings for August is shown in Illustration 5.3.

Illustration 5. 3.

PROFF COMPANY

Statement of Retained Earnings

For the Month Ended August 31, 200X

 

Retained earnings, July 31	$2,070
Add: Net income for August	1,500
	$3,570
Less: Dividends	1,000
Retained earnings, August 31	$2,570

 

Information on the financing and investing activities of a business may be helpful in appraising its continued profitability and solvency. The income statement, statement of retained earnings, and balance sheet often do not provide ready answers to such questions as: How much cash was generated by operations? Why is such a profitable firm only able to pay such meagre dividends? How much money was spent on plant and equipment, and where did it come from? The statement of changes in financial position - the fourth major financial statement - provides answers to such questions. It reports the flow of funds into and out of a business and is often called a funds statement or a cash flow statement. The statement of cash flow is a derived statement in the sense that it is usually prepared from data originally collected for the balance sheet or income statement.

Cashflow statement shows money actually coming into and going out of a company in a particular period: cash inflows and outflows. It represents a restructuring and a more detailed presentation of entries found in other statements. The cashflow statement reports actual cash generated at a point in time, thus avoiding the problem of accruals. Usually, the cashflow statement breaks down the cash inflow and outflow activities into three broad categories: cash from operating activities, cash from investment activities and cash from financing activities.

 Net cashflow from operations is the money generated by the sales of the company’s goods or services, minus the money spent on supplies, staff salaries, etc. in the period.

Net cashflow from investment activities is the result of purchases of securities in other companies, money received from sales of securities in other companies, loans made to borrows, loans repaid and loan interest paid by borrowers, purchase of land, buildings and equipment.

Net cashflow from financing activities is the result of money received through short-term borrowing, money repaid in short-term borrowing, money received through issuing new shares and/or bonds in the company, dividends paid to shareholders.

Adding and subtracting the figures above, the company calculates its net cash position at the end of the year. Investors check the cashflow statements to see how the company is obtaining and using its cash – how much is made from its operations, how much it has raised through new share issues, etc.

Other names are sometimes used for it, including funds flow statement and source and application of funds statement.

 

3.5.7 Say it in English:

Section A

· to fall due

· current (short-term / short-lived / short life) assets

· fixed (noncurrent) (long-term / long-lived / long-life) assets

· current (short-term) liabilities / fixed (long-term) liabilities

· owner’s equity

· shareholders’ (stockholders’) equity / share capital

· balance sheet, balance, statement of financial position; asset-and-liability statement (Am.)

· income statement, profit and loss account, profit and loss statement, statement of earnings, statement of operations

· managerial (management) accounting / financial accounting

· accounts payable, payables

· accounts receivable, receivables

· statement of retained earnings

· to furnish (to provide) capital to a company

· to conform to certain standards

· generally accepted accounting principles (GAAP)

· Securities and Exchange Commission (SEC)

· feedback

· the internal user

· the external user

· notes payable

Section B

The Profit and Loss Account (and Statement of retained earnings related to it / associated with it) is the flow statement as it accounts for some changes that occurred in an account of retained earnings demonstrating (reflecting / showing) an increase (revenues) and decrease (expenses and dividends) of the retained earnings for the accounting (reporting) period.

The data / information on (about / concerning) economic results of the operative (operating) activity for a certain (particular / stated / specified / indicated / given) period are / is collected in the profit and Loss account. The key notions used for the income measurement for the period are accounting of revenues and their matching with (against) expenses.

Revenues are accounted in (during / within) the period of activity, resulting in their receipt (e.g. = for example / for instance, the delivery of goods or rendering services) regardless of (irrespective of / without reference to) the fact when payment is executed (made / effected).

Expenses include (encompass) resources used for the generation of income of the certain period and funds spent on the administration of the firm during the same period, also without accounting (taking into account / taking into consideration) when the appropriate cash assets(cash means / cash facilities / cash resources / monetary funds) were spent. So (thus), income for a certain period is not directly connected with the cash flow associated with the operations undertaken (performed / conducted / carried out) within the same period. Besides (moreover / furthermore / else), as the Profit and Loss Account is based on the results of the operations it doesn’t contain any information on (about) investing or financing (financial) policy of the firm for a given period of time.

The data (information is) concerning (on / about) the cash flow of the operations (transactions) undertaken (carried out / effected) for the accounting (reporting) period, as well as on the investing and financing activity during the same period are provided in the cash flow statement.

Section C

The Balance Sheet (B / S) of an enterprise is one of the forms of Financial Statements in which the information on the Assets, Liabilities and Capital of an accounting entity is reported (shown) as of a specified moment in time. (The balance sheet reports the assets and equities and liabilities (liabilities and owner’s equity) of the entity at the specified moment in time.) Companies Act stipulates the definite Balance Sheet Formats and requires that it should provide a true and fair view concerning (about / on / of) the status of the company (the co’s status / state of affairs in the company).

Section D

Balance Sheet Formats (of the enterprise / of the accounting entity / of the company).In Great Britain (in the UK) it is allowed by Companies Act to present (produce / render / submit) the Balance Sheet in two formats: Horizontal Format and Vertical Format. The Balance Sheet Format of the American corporations differs from that adopted in Great Britain by terminology and due to the fact that firstly it gives (provides) the information on the most liquid asset items (Assets) and obtained funds (Liabilities), but not vice versa as it is exercised (executed / made) in Great Britain. Most English companies prefer Vertical Format. As for (as to) other states-EU members only Germany and Italy must present (submit) their Balance Sheet in the Horizontal Format only / exclusively.