Q - Chapter 2
Q - Chapter 2
1.INTRODUCTION
Financial Statements represent a formal record of the financial activities of an entity. These are
written reports that quantify the financial strength, performance and liquidity of a company.
Financial Statements reflect the financial effects of business transactions and events on the
entity. They are the means to present the firm’s financial situation to the users. Preparation of
the financial statements is the responsibility of controllers. As these statements are used by
investors and financial analysts to examine the company’s performance in order to make
investment decision, they should be prepare very carefully and contain as much information as
possible.
The main types of financial statements are: Balance sheet, Profit and Loss account and Cash
flow Statement .
2.READING
Reading 1
Black company
American and continental European companies usually put assets on the left and capital and
liabilites on the right. In Britain, this was traditionally the other way round, but now most British
companies use a vertical format, with assets at the top, and liabilities and capital below.
Question 1:
1. British and Ametican balance sheets show the same information, but arranged
differently.
2. The revenue of the company in the past year is shown on the balance sheet.
3. The 2 sides or halves of balance sheet always have the same total.
4. The balance sheet gives information on how much money the company has received
from sales of shares.
6. The balance sheet tells you how much money the company owes.
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Reading 2
goods sold (COGS): the cost associated with making the products that have been sold, such as
raw materials, labour and factory expenses . The difference between the sales revenue and cost
of goods sold is gross profit. There are many costs or expenses that have to deducted from
gross profit, such as rent, electricity and office salaries. These are often grouped together as
selling, general and administrative expenses.
The statement also usually shows EBITDA (earnings before interest, tax deprciation and
armortization) and EBIT (earnings before inerest and tax). The first figure is more objective
because depreciation and amortization expenses can vary depending on which system a
company use.
After all the expenses and deduction is the net profit, often called the bottom line. This profit
can be distributed as dividends (unless the company has to cover past losses), or transferred to
reserves.
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Question 2:
Which figure in each of the following pairs is higher for a profitable company?
3.EBIT/EBITDA
Reading 3
British and American companies also produce a cash flow statement. This gives details of cash
flows- money coming into and leaving the business, relating to:
The cash flow statement shows how effectively a company generates and manages cash. Other
names are sometimes used for it, including funds flow statement or source and application of
funds statement.
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British companies also have to produce a statement of total recognized gains and losses,
showing any gains and losses that are not included in the profit and loss account, such as the
revolution of fixed assets.
Question 3:
a. True
b. False
2. The P/L account statement has three components: operating activities, investing activities,
and financing activities
a. True
b. False
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3. What can be found on a P/L acount statement?
4. Which of the following is not one of the four basic financial statements?
a.Balance sheet
b.Audit report
c.Income statement
d.Statement of cash flows
5. What relationship exists between costs of goods sold and gross profit?
6. On an accounting statement of cash flows, an "increase (decrease) in cash during the year"
appears as
a. a cash flow from operating activities
b. a cash flow from investing activities
c. a cash flow from financing activities
d. none of above
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8.Which of the following is not one of the items required to be
shown in the heading of a financial statement?
III. GRAMMAR
1. Look at the reading 1,2,3 again and find the words using “which”. How can you use “which”
in a sentence?
2. How to use “If” and “Unless” in English.
IV.VOCAPBULARY
Question 5.The UK and the USA often have different terms for the same thing. Here are some
examples. What terms do you often use? Please translate them into your language.
Shareholder Stockholder
Stock Inventory
1. Retained A. Assets
2. Account B. Flow
3. Common C. Receivable
4. Total D. Earning
5. Prepaid E. Stock
6. Accumulated F. Income
7. Intangible G. Depeciation
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8. Net H. Liabilities
9. Cash I. Expense
1.An asset which does not have physical nature (such as a trade mark or patent )
3.The ordinary shares held by the owners, who therefore are the last to receive their money
back in the event of liquidation.
4. Profit which is not paid out to shareholders in the form of dividends but instead is kept by the
company to reinvest or pay off debts.
5. The amount due from debtors to whom goods or services have been sold on credit.
Question 7. Choose the best way to say these numbers . (Sometimes more than one way is
possible.)
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b sixty-three pounds and thirty pence
5,400,34 a five hundred thousand, four hundred, three hundred and forty-two
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b five million, four hundred thousand, three hundred and twenty-four
Question 8:
Are the following statements true or false ? Find the reasons for your answer from the text.
1.A current liability will be paid before the date of the balance sheet.
3. Shareholders’ equity consists of the money paid for shares and retained earnings.
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Glossary:
Terms Definitions
Intangible assets An asset which does not have physical nature (such as a trade mark or
patent )
Common stock The ordinary shares held by the owners, who therefore are the last to
receive their money back in the event of liquidation
Total liabilities The total legal obligation of company to pay other parties
Retained earning Profit which is not paid out to shareholders in the form of dividends
but instead is kept by the company to reinvest or pay off debts
Account receivable The amount due from debtors to whom goods or services have been
sold on credit.
Net income The excess of revenues over expenses for a designated period of time
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FINANCIAL STATEMENTS
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