ACCOUNTING AND
FINANCIAL STATEMENTS
BOOKKEEPING
(to do bookkeeping)

recording of transactions
(money received - credits
money paid out - debits)

ledger- a book or computer file for recording
the money paid and received
(purchase ledger/sales ledger)
ACCOUNTANCY
(ACCOUNTING)






checking accounts
calculating of costs and expenses
analysing financial records
preparation of financial statements
and tax returns
Inland Revenue (IR) - GB
Internal Revenue Service (IRS) - USA
The basic rule
for accounting

keep records accurately enough to
file tax returns

find tax-deductable expenses
Financial reporting
Annual reports – Chairman’s statement
directors’ report
auditor’s report
People involved in accounts:
a) bookkeepers
b) accountants
c) auditors
FINANCIAL STATEMENTS
1. PROFIT AND LOSS ACCOUNT - GB
(INCOME STATEMENT – US)
2. BALANCE SHEET
3. CASH FLOW STATEMENT
THE PROFIT AND LOSS
ACCOUNT (P&L)

earnings
- income, turnover, revenue

expenses
- costs, expenses, overheads
_________________________________
profit
- to pay:tax, dividends, retained
profit
net profit = revenue - costs
THE BALANCE SHEET
1.
ASSETS
2.
LIABILITIES
3.
SHAREHOLDERS’ EQUITY
ASSETS
fixed assets
-land, buildings, machinery,

- intangible assets
(goodwill, patents, copyrights, trade marks)

current assets
- materials, finished goods, cash, debtors
LIABILITIES

current - creditors, taxes, interest

long-term - loans, bonds
OWNERS’ EQUITY
(Shareholders’ equity)

Share capital (common stock)

share premium (paid-in surplus)

company’s reserves (retained profit)
ACCOUNTING EQUATION
(double-entry bookkeeping)
Assets = liabilities + Owners’ Equity
Owners’ Equity = Assets - Liabilities
CASH FLOW
STATEMENT

sources of funds (inflow)
(trading profits, depreciation
provisions, sales of assets,
borrowing, issuing of shares)

applications of funds (outflow)
(purchases of assets, payment of dividends,
repayment of loans, trading losses)
CONSOLIDATED ACCOUNTS
Financial statements of the parent
company and its subsidiaries
FILL IN THE GAPS:
Company profits are usually split into
.......................
 .......................
 .......................

Double-entry bookkeeping requires that every
transaction is recorded in one account as a sum
...................................... and another as a sum
..............................
FILL IN THE GAPS:
Company profits are usually split into
tax
 dividends
 retained profit

Double-entry bookkeeping requires that every
transaction is recorded in one account as a sum
received and another as a sum paid
MATCH THE WORDS TO MAKE WORD PARTNERSHIPS:
1.
2.
3.
4.
5.
6.
7.
profit &
a) assets
_______________________
balance
b) money
_______________________
cash flow
c) loss account
__________________
borrow
d) of funds
________________________
annual
e) sheet
________________________
current
f) report
________________________
sources
g) statement
____________________

MATCH THE TERMS WITH THE DEFINITIONS:
stock, gross profit, accounting, assets, depreciation, audit, dividends, creditors,
overheads, net income, debtors, bookkeeping, revenue
1. Keeping financial records, recording income and expenditure, valuing assets and
liabilities, giving financial forecasts. ___________________
2. Writing down the details of transactions, debits and credits.__________________
3. An official inspection of business and financial records. ____________________
4. All the money that a company will have to pay to someone else in the
future._______________________
5. Anything owned by a business .__________________
6. Sums of money owed by customers for goods or services purchased on
credit.______________________
7. Raw materials, work in progress, and finished goods stored ready for sale.
________________
8. Regular costs such as rent, electricity, wages, etc.__________________
9. The reduction in value of a fixed asset during the years it is in use. ______________
10.Money received from the sale of goods or services. ________________
11.The total amount, without anything taken away. _______________
12.An amount after all deductions have been made. ____________
13. Payment to shareholders when a company has made profit. ______________
Fill in the missing words:










The profit and _______account shows if a company is receiving more money than
it’s spending.
If you don’t like taking risks, you should only ________in very successful companies
We sold a lot more last year, so our ____________went up.
Everyone who buys a share ____________part of the company.
Thirty per cent of our profits goes straight to the government in _____.
Profit is the difference between revenue and _________________.
Even they saw our financial statements, the bank refused to _________us any more
money.
I think this is a good investment: it pays 8% ___________.
Another term for profit is net ____________.
Sort the following into types of assets:
building
cash in the bank
human capital
stock
Current assets
_____________
_____________
_____________
debtors
land
Fixed assets
______________
______________
______________
goodwill
reputation
investments
Intangible assets
_____________
_____________
_____________

Sort the following into assets and liabilities:






accounts payable
accrued expenses
dividends
inventory
accounts receivable
land and buildings
investments
cash and equivalents
deferred taxes
long-term debt
Assets
________________
________________
________________
________________
________________
Liabilities
________________
________________
________________
________________
________________
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http://www.investopedia.com/video/play/understanding-cook-the-books
What does “cooking the books” mean?
http://www.investopedia.com/video/play/understanding-free-cash-flow
Haw can free cash flow be defined?
How is it calculated?
http://www.investopedia.com/video/play/introduction-balance-sheet
What is a Balance Sheet?
What happens when Joe gets a small business loan?
How does repayment of the loan reflects on Joe’s Balance Sheet?
What equals the net worth of his business?