Text 2 Accounting

One of the critical components of the operation of a business is a timely and accurate system of accounting that an entrepreneur or a company needs to consider. The entrepreneur needs to understand the accounting equation: assets= liabilities + owner’s equity. Within these three areas accounts are divided by: 1) assets, 2) liabilities, 3) owner’s equity or net worth, 4) revenue, and 5) expenses.

The accounting procedure utilized in a basic accounting system is the double entry bookkeeping cycle. Each transaction account has two sides, the debit or left side and the credit or right side. Increases in asset accounts are recorded as debits. Increases in liability and owner’s equity accounts are recorded as credits. Revenue increases are recorded as credits since they increase the equity. Increased expenses are recorded as debits because they decrease the equity.

The balance of an account is the difference between total debits and credits. Asset and expense accounts normally show debit balances; and liability, owner’s equity, and revenue accounts usually show a credit balance.

It’s necessary to determine the accounting period over which the financial activities of the business are measured. This can be a fiscal year beginning at any given time during a year and lasting for 12 months. It can also run the length of a calendar year.

Once these basics are understood and decided upon, the business owner will need to develop and utilize source documents to keep track of transactions. These source documents can include the following: daily summary of cash and sales activities, deposits and withdrawals from accounts, petty cash vouchers, payroll records, receipts, invoice vouchers and purchase vouchers. After these source documents have been organized, transactions will be recorded in books. Periodically information from the books is compiled into financial statements. These three basic financial statements are an income statement, a balance sheet and a statement of changes. The income statement compares revenues and expenses by identifying profit or losses. A balance sheet shows the status of assets, liabilities and equity accounts on a given day. A statement of changes in financial position indicates where money has come from and where it has gone from the beginning of an accounting period to the end.

Assignments to text 3:

1. Translate the headline of the text

2. Read the text and say what the main types of financial statements are.

3. Look through the text and find all the sentences which clarify the differences in the financial statements.

4. Look through the text and find explanations of the following:

· balance of an account

· application of funds

· source of funds

5. Translate the text.

Дата добавления: 2015-11-16