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Accounting shows a financial picture of the firm. An accounting department records and measures the activity of a business. It reports on the effects of the transactions on the firms financial condition. Accounting records give very important data. It is used by management, stockholders, creditors, independent analysts, banks and government.

Most businesses prepare regularly the two types of records. That is the income statement and balance sheet. These statements show how money was received and spent by the company.

One major tool for the analysis of accounting records is ratio analysis. A ratio analysis is the relationship of two figures. In finance we operate with three main categories of ratios. Оne ratio deals with profitability, for example, the Return on Investment Ratio. It is used as a measure of a firms operating efficiency.

The second set of ratios deals with assets and liabilities. It helps a company to evaluate its current financial position. The third set of ratios deals with the overall financial structure of the company. It analyses the value of the ownership of the firm.

Active Vocabulary

accounting бухгалтерський облік

record документ, нотатка, протокол

to record нотувати, реєструвати

to measure вимірювати

transaction угода, банківська операція

firm's financial condition фінансовий стан фірми

to provide data надавати дані

creditor кредитор

independent незалежний

income statement звіт про прибутки

balance sheet балансовий звіт

to receive отримувати

to spend витрачати

ratio analysis аналіз коефіцієнтів

profitability прибутковість

Return on Investment Ratio коефіцієнт повернення інвестицій

efficiency ефективність, продуктивність

to evaluate оцінювати

value цінність, вартість

ownership власність

overall financial structure повна фінансова структура

Comprehension Questions

1. What is the purpose of accounting?

2. Who uses the data provided by accounting firms?

3. What are the two types of records which most businesses prepare?

4. What can you know analyzing the income statement and balance sheet of a company?

5. What is the purpose of the ratio analysis?

6. What categories of ratios in finance do you know?

Vocabulary Practice

Exercise 1. Choose the necessary word and put it in the sentence.

1. An accounting helps... the activity of a business. 1 to profit

2. Do you know the effect of your last...on financial condition

of the firm? 2 profit

3. Accounting records provide ... for stock-holders,

independent analysts. 3 efficiency

4. The second type of ratio helps the company ... its current

financial position. 4 ownership

5.... is one the two main records which most of the businesses

prepare regularly. 5 to evaluate

6. The ... of the company includes real estate in California. 6 transaction

7.1 am sure of the ... of this transaction. 7 data

8. Our company's current... is very high. 8 income statement

9. They ... from the association with that corporation. 9 to measure


(Peter and Karen work in a large company. They are having dinner in the company cafe).

Peter Hi, Karen. Glad to meet you. You looked very busy this morning. There were

so many statements on your table.

Karen Oh, Peter. This is the end of the year. The accounting department is very busy.

Peter I know. We are all very busy, totaling accounts. But I've already turned in the

report on my department.

Karen Good.

Peter So, how's business.

Karen I don't know everything. I am busy with some records and statements. I don't

have the whole picture. But I think the company is doing very well.

Peter I am sure of it. We have to keep our creditors and investors happy.

Karen Well, the balance sheet and profit and loss statement are ready. It is the end

of the fiscal year. So everybody can check out the assets and liabilities, net

worth and profit position of the company in the financial statements.

Peter Do you work with the pay checks?

Karen Why are you

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