Accounting and financial statements Q Consider the different types of accounting and financial statements Q Discuss a company’s financial results, Lead-in + What is accounting? *+ What skills do you think accountants need? + Doyou think you have these skills? (What are your assets and liabilities?) + Ifyou have not yet chosen a career, could it be accountancy? Vocabulary ap id find a way to redefine ‘y 1 Which basic accounting words are defined below? sor eter ane 1 all the money received from business activities during a given period Aassets Bincome C transactions 2 all the money that a business spends on goods or services during a given period A debts Bexpenditure liabilities 3 a financial operating plan showing expected income and expenditure A account B budget C financial statement 4 anything owned by a business ~ cash, buildings, machines, equiprnent, etc. Aasset Bincome Crevenue 5 all the money that a company will have to pay to someone else in the future, including debts, taxes and interest payments A debits Bexpenditure Cliabilities 6 anentry in an account, recording a payment made Acredit Bdebt C debit 7 an entry in an account, recording a payment received Acredit B debit income 8 adjective describing something without a material existence, which you can't touch A current B intangible Ctangibie 9 adjective describing a liability which has been incurred but not yet invoiced to the ‘company A accrued B deferred C receivable 10 delayed or postponed until a later time A deferred Bpayable Cretained 2 How well do you know the different types of accounting and the different branches of the accounting (or accountancy) profession? Match the terms with the definitions in the box below. accounting auditing bookkeeping cost accounting ‘creative accounting’ managerial or management accounting tax accounting 1 calculating all the expenses involved in producing something, including materials, labour, and all other expenses Accounting and financial statements Unit 19 952 calculating how much an individual or a company will have to pay to the local and ational governments (and trying to reduce this to a minimum) 3 inspecting and reporting on accounts and financial records 4 preparing financial statements showing income and expenditure, assets and liabilities 5 providing information that will allow a business to make decisions, plan future operations and develop business strategies 6 using all available accounting procedures and tricks to disguise the true financial position of a company 7 vriting down the details of transactions (debits and credits) + Which of these areas of accounting do you find the most interesting? 3 Match up the names of the financial statements with the definitions below. 1 Balance sheet (or Statement of financial position) 2 Cashflow statement |3 income statement (or Statement of income, Profit and loss statement, or Profit and loss account) A a statement giving details of money coming into and leaving the business, divided into day-to-day operations, investing and financing B a statement showing the difference between the revenues and expenses of a period € a statement showing the value of a business's assets, its liabilities, and its capital or shareholders’ equity (money the business has that belongs to its owners} 4 Make common word combinations with the verbs and nouns below. calculate assets keep expenditure pay income receive liabilities | record records | value taxes __|_ | transactions Reading 1: Google Inc. Balance sheet Look at the balance sheet opposite, and answer these questions. 1 Which lines on the balance sheet do the definitions below it refer to? (lwo have been done as. examples.) 2. Which two figures have to be the same (to balance), by definition? 3 How much money had the company already paid in advance for goods and services, on the date of the 2008 balance sheet? 96 Unit 19 Accounting and financial st 4 At the 2008 balance sheet date, which is greater, the amount of capital the shareholders have paid into the company, or the amount of profit that has not been spent? 5 At the 2008 balance sheet date, which total is higher ~ the money Google currently owes, or the money that it is owed?* Soavds4 " Google Inc. Finance_ 3 In Millions of § “As of 2008-12-31 As of 2007-12-31 [Casha Equivalents 8,656.67 608159 @ | Short Term Investments 7,189.10 813702_| [ota Receivables, Net 2.6429 216253 | [Prepaid Expenses _ 1404.01 69421 1S | Other Current Asses, Total 286.1 2578 FF Total Current Assets 2078.18 7289.14 Property/Plant/Equipment, Total - Gross 5,233.84 4,039.26 Goodwil Net (10) 4839.85 229937 intangibles, Net 936.69 446.60 Long Term Investments 85.6 1059.63 | ‘Other Long Term Assets, Tota 45385 201.75 Total Assets 25,335.81 [Accounts Payable 28211 ‘Accrued Expenses 1824.46 1575.42 [ Other Current Liabiis, Total 299.65 178.07 Total Current Liabilities 2,302.09 2,035.60 Deferted income Tax 51 0.00 Other Long Term Liabiites, Total 12141 61053 ‘Total Liabilities 3528.71 2,646.13 Common Stock, Tol 031 o31_| [Ad = wasosd 324122 | Retained Eamings (8) 15,561.65 35478 | Other Equity Toal 22658 11337 Total Equity __ 28,238.86 22,689.68 ‘Total Liabilities & Shareholders’ Equity 3176757 25,335.81 all the money belonging to the company's owners assets whose value can only be turned into cash with difficulty (e.g. reputation, patents, trade marks, etc.) Capital that shareholders have contributed to the company above the nominal or par value of the stock expenses such a5 wages, taxes and interest that have not yet been paid at the date of the balance sheet money owed by customers for goods or services purchased on credit. money owed to suppliers for purchases made on credit money paid in advance for goods and services profits that have not been distributed to shareholders tangible assets such as offices, machines, etc. the difference between the purchase price of acquired companies and their net tangible assets the total amount of money owed that the company will have to pay out atements Unit 19 97Listening: Valuing assets Richard Barker is the director of the MBA programme at the Judge Business Echool of Cambridge University, and an expert on international accounting Listen to him talking about valuing assets, and answer the questions. 1 What examples does Richard Barker give of assets tha 2 How does he define a company's annual profit or loss? 3 Why's the estimated value of an airport runway probably not very objective? 4 How does he define or explain depreciation? tare difficult to value? Richard Barker Discussion * How would you put a value on your college or university? What are Ee imaior assets ~ buildings and equipment, or people and their skills, knowledge and reputations? In most countries, companies record the historical cost of their assets ~ their original purchase price, and not their (estimated) current selling Price or replacement cost. Why? * Should companies record raw materials, work-in-progress, and their inventory of products ready for sale at their cost price, or their current market price (the price at which they could be sold)? * Give some examples of companies whose value largely derives from intangible assets such as their well-known brands, or their good reputation. Reading 2: Google Inc. Income statement Look the income statement opposite. Which lines refer to the following? 1 money received from investments 2 money spent in order to produce income in the future 3 the expenses specific to providing the company’s services 4 additional expenses involved in running the company Vocabulary: Cash flow statemen' Cash flow statements contain three categories: Cash from Operating Activities (Ops.), Cash from Investing Activities (Inv.) and Cash from Financing Activities (Fin Which categories do the following items belong to (as positive or negative amounts)? |Amortization (loss of value of intangible assets) [erste in the size of the inventory Depreciation (loss of value of tangible assets) Dividends paid | ioe ies pi |Payments to suppliers for goods and services | Payments to employees Proceeds from issuing shares or debt [Purchases or sales of property, plant and | Receipts from the sale of goods or services [Repurchase of company shares or repayment of debt ipment | Lf 98 | Unit 19 Accounting and financial statemerFinance HB [inmillions of $ ‘12 months ending 12 months ending Ww g 2008-12-31 2007-12-31 5 2179555 16,595.99 S| rs s 8621.51 a 04 =. 88 5 = 2785.9 C.F) B [Unusual Expense (Income) 1034.76 Wa ~ [Total operating Expense 16,258.34 6o Operating Income 5,537.21 (Non-operating) Interest income Net 31.89 6 Other, N 450 Net In Before Tax 5,853.60 6 Net Income After Tax 4006.86 Vocabulary note Google's financial statements use American terms, which sometimes | liter ftom British ones. | American English British English | Accounts Payable Creditors Receivables or Accounts Debtors Receivable ‘Additional Paid-in Capital Share Premium ‘Annual Stockholders Meeting Annual General Meeting ‘Common Stock Ordinary Shares Net income Profit Role play: Presenting a company’s results The Chief Financial Officer of Google Inc. is going to present the company's results at the Annual Stockholders Meeting. He/she will refer to the Balance Sheet and income Statement, and explain which figures have increased and which have decreased. In groups, prepare the presentation. If this is a homework task to prepare for the next lesson, you could look up more recent figures on the Internet on sites such as http://investor. google.com, http:i/ finance.yahoo.com and http://moneycentral.msn.com, rather than use the figures given here. You could also use the company’s website or the Internet to find details about acquisitions, product developments, and so on, which might explain any changes. Alternatively, you could present the accounts of a company you work for or have worked for or know well. uunting and financial statements Unit 19 99