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.pdf7.The range of different types of goods which a firm sells.
8.The sales figure minus any goods which are returned.
9.Shows if the firm can meet its debts in the long term.
10.The amount of borrowing by a firm.
11.The rate of return on an investment in shares.
SA _ _ _ M _ _
T _ _ N _ _ _ R
S _ _ V _ _ _ Y
G _ _ R _ _ G
Y _ _ L _
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shows how well the business can meet its |
a) |
capital structure |
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liquidity |
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shows how successfully the business is |
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trading |
c) |
investment |
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shows how well the business is using its |
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profitability |
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assets |
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4. |
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provides information about how the capital |
e) |
use of assets |
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structure of the firm is affecting the cost of |
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capital and the return to shareholders |
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5.shows how the company's performance is reflected in the market price of a share
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B |
Which type of ratio are the following? Choose from a – e above. |
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current ratio |
______________________ |
– |
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price earnings ratio |
______________________ |
– |
fixed assets/net worth |
______________________ |
– |
asset/sales |
______________________ |
– |
acid test ratio |
______________________ |
– |
gross profit/sales |
______________________ |
– |
dividend cover for ordinary shares |
______________________ |
– |
borrowing/net worth |
______________________ |
– |
collection period for debtors |
______________________ |
– |
net profit after tax/sales |
______________________ |
TASK 2
Read the questions below and the reviews of accounting books. Which section (A, B, C or D) does each question 1 - 6 refer to? For each question 1 - 6, mark one letter (A, B, C or D). You will need to use some of these letters more than once.
1.A range of experts have contributed to the book.
2.One part is less satisfactory than other sections of the book.
3.It uses many authentic examples to support its advice on one area of accountancy.
4.Purchasers of the book are supplied with additional information about revisions in accountancy practice.
5.It considers the impact on accountancy of a new development in the business world.
6.It explains the principles that guide one regulatory authority.
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REVIEW OF BOOKS ABOUT ACCOUNTANCY
AInternational Accounting Standards
First, a word about the size of this book: it is over 2,000 pages long and,
though it is printed on extremely thin paper, it is a brick of a book. At Ј95 it may seem expensive, but it is a bargain because it covers so much ground. Although a little weak on testing methodology of proposed hedges, the chapters on accounting for financial instruments are excellent. This is a book for both students and accountants in practice who wish to understand where we are and what directs the policies of the IASB (International Accounting Standards Board) with regard to fair value accounting. The author has done a first class job of explaining why fair value accounting has been introduced.
BLegal Service for Accountants
This is an easy-to-use, time-saving source of advice and information,
which can be used as a first point of reference by accountants who are faced with an unfamiliar problem or query. A word of warning: it costs Ј225. However, it refers extensively to legislation, cases and specialised journals in a variety of fields, which provides excellent evidence to illustrate any advice that is given. Several other features combine to make this service second to none: sections which include precedents and checklists; numerous examples illustrating points; regular updates to ensure the user is fully aware of all the latest developments in legislation and practice; and a full index and tables of statutes and cases.
CGuide to Risk Management
This is a practical, one-stop guide to all areas of risk management and
draws on a great number of case studies from leading companies. It examines risk management from two different perspectives: practice management, covering the internal controls and checks an accountancy firm must put in place; and client
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service, including the provision of risk management strategies for clients. The book fully covers international issues regarding proceeds of crime, explaining what these mean for the accountant, and what procedures they should put in place to deal with them. Written by an industry expert and priced at Ј65, this text will help to ensure that accountants provide added-value consultancy for their clients.
DAccountancy and the Digital Economy
There is mounting evidence that the deployment of digital technologies by
companies affects their functioning in more than economic terms. At a technical level, digitisation directly influences organisational processes. Digitisation impacts on the form, substance and provenance of internal accounting information, and this affects the actions of decision makers. This book provides an important analysis of the effect of communication technology on accounting. It is valuable because it offers a variety of opinions and each chapter has been written by a leading international accounting academic. The writers discuss accounting and management control systems and wider structural shifts connected with the advent of digital technology from their different perspectives. The book costs Ј50, and will be of interest to scholars and practitioners concerned with the growing importance of digital technologies in their field.
Writing
The following phrases are from two different letters: a letter to a firm of accountants asking for advice and the reply. They are all mixed up. Put them in the correct order to produce two correct letters.
1.We look forward to hearing from you. Yours sincerely
Jan Bust
2.Thank you for your letter of 26 January regarding the setting up of a
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partnership. I am now writing to give you my first thoughts which you may want to discuss further.
3.So far we have agreed that Mr Ford will give £20,000 as capital but will not take part in the running of the business. Mr Grant will manage the business but contribute only £3,000. Mr Blest will provide £8,000 as capital and assist in the business if and when required.
4.I trust that you will find these points useful. If you wish to discuss anything further please let me know.
5.Dear Mr Blest
6.Yours sincerely Camilla Simone
7.Turning to profit sharing, I think it would be best for each of the partners to receive interest on their capital investment and then decide how to share the remaining profits.
8.First of all, I suggest that as Mr Ford is not going to be involved in the daily management of the partnership he be made a limited partner. This means that his liability is limited to the amount of capital invested by him. He can receive a fixed amount of interest on his investment or an amount based on the profits. I feel that Mr Grant, as the managing partner, and Mr Blest who will be actively involved, should receive salaries for their work.
9.Dear Ms Simone
10.We now need financial advice about the structure of the partnership and would be grateful if you would assist us. We have planned our next meeting for 21 February, and would like to discuss your ideas then.
11.Two friends and myself have discussed setting up a partnership and we are now writing to you for advice.
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12.Finally, the law does not require you to draw up a legal deed of partnership but I think you should have a written agreement.
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request for advice |
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Collaborative task
Work in a small group. Discuss together
a)what the job of an accountant involves,
b)the importance of good communication skills in developing a career in accounting,
c)how you can find a good accounting job.
FOLLOW-UP ACTIVITIES
EXERCISE 1
Read the text about bookkeeping. Fill in the gaps (1-12) with these words:
credits |
debits |
double-entry |
invoice |
journals |
ledger |
posted |
receipt |
transactions |
transferred |
trial balance |
vouchers |
Bookkeepers record every purchase and sale that a business makes, in the order that they take place, in (1) ____________. At a later date, these temporary records are entered in or (2) ____________ to the relevant account book or (3) ____________. Of course the "books" these days are likely to be computer files. At the end of an accounting period, all the relevant totals are (4) ____________ to the profit and loss account. (5)
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____________ bookkeeping records the dual effect of every transaction - a value both received and parted with. Payments made or (6)
____________are entered on the left hand (debtor) side of an account, and payments received or (7) ____________ on the right-hand side. Bookkeepers will periodically do a (8) ____________ to test whether both sides of an account book match. In most business (9) ____________, the seller of goods or services sends the buyer a bill or (10) ____________ and later a (11) ____________ acknowledging payment. Businesses are obliged to retain the documents - known as (12) ____________ - that support or prove an item in an account, and make them available to the internal and external auditors who check the accounts. Bookkeepers are not to be confused with librarians, who also keep books, or with bookmakers, who "make books" in the sense that they accept bets (on horse races, etc.) and traditionally wrote them down in a book like a bookkeeper's journal. Accountants, unlike bookkeepers, analyse financial records, and decide how to present them.
EXERCISE 2
Add appropriate verbs from the text above to these sentences:
1.Bookkeepers ____________ business transactions.
2.A debit is a payment ____________.
3.A credit is a payment ____________.
4.Debits are ____________ on the left-hand side.
5.At the bottom of the page, bookkeepers ____________ the totals.
6.Companies have to ____________ invoices and receipts.
7.The auditors ____________ the accounts.
8.Accountants, managers and shareholders ____________ the accounts.
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EXERCISE 3 Word formation
Complete these sentences, which describe notes to the financial statements, using the base word at the end of each sentence. The first one (0) is given as an example.
0.Notes to the financial statements are additional notes and information added to the end of financial statements to provide the reader with more information. (ADD)
1.These notes help to clarify the ____________ of specific items in the statements, as well as provide a more detailed assessment of a company's financial condition. (C0MPUTE)
2.Notes to financial statements can include information on debt, going
concern, accounts, contingent ____________, |
or |
contextual |
information explaining the figures. (LIABLE) |
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3.The notes to the financial statements are also used to explain the method of accounting used to prepare the financial statements, i.e.
____________ basis accounting. (ACCRUE)
4.In consolidated financial statements, all ____________ should be listed, as well as the amount of ownership that the parent company has in the subsidiary companies. (SUBSIDE)
5.Any items in the financial statements that are valuated by ______should be contained in the notes. (ESTIMATE)
6.Differences between the amount of an estimate of any items previously
_____ and the amount of the actual results should be contained in the notes. (REPORT)
7.Finally, full ______of the effects of such differences between the estimate and the actul results should be in the note. (DISCLOSE)
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EXERCISE 4 Vocabulary building
Look at the four descriptions below of financial statements. Substitute the words in bold with similar words from the box.
accrued |
collected |
condition |
income |
flow |
dues |
expenditure |
covered |
snapshot |
monies |
held |
value |
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–The balance sheet
This (1) statement of financial position shows a firm's financial (2) situation at a specific point in time.
–The profit and loss account
This shows a firm's (3) revenues and (4) expenses for a period, the amount of profit that is (5) reinvested in the firm (or losses to be (6) funded), dividends paid to the shareholders, the (7) accumulated net profits from any previous year's trading and tax (8) liabilities.
–The cash flow statement
This document shows the (9) movement of (10) funds for a period of time.
–The consolidated financial statements
These (11) combined financial statements of a parent company and its subsidiaries, showing, assets, liabilities, and net (12) worth for the whole organization.
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EXERCISE 5 Writing
You work for a firm of accountants. One of your clients, EXP, is planning to sell part of its company. You have received the following letter from Renfield Group, a potential buyer.
Read the letter from Gustav Meyer, Financial Director of Renfield Group, on which you have made some notes. Then, using all the information in your notes, write a letter to Mr Meyer on behalf of your client, EXP.
As you know, we are interested in purchasing part of EXP. We have looked at the accounts but are concerned about the fall in profits last year. Was there a particular reason for this?
New competitor
Secondly, the sales forecast seems to be unrealistically high, especially considering the drop in turnover last year, and we would like to know what these sales projections are based on.
Explain why figures are realistic
Thirdly, we need to be sure that there will be no monies overdue from credit customers if we decide to purchase.
Describe new credit control system
We understand that the current management team are part of the package. We would like to have more details of the management team's experience.
Give details
Finally, we understand that the buildings are rented. Can you confirm this? We look forward to hearing from you.
Yours sincerely |
Yes, 5-year |
Gustav Meyer |
lease |
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