The term "asset" means anything of value that is owned by a company and can be expressed in terms of money. Economic resources that provide a potential future service to the organization are called assets in accounting. A company's total assets include such items as cash, buildings, equipment, any other property and accounts receivable, that is, money owned by its customers.
Assets are usually classified as current and long-term, both types consisting of tangible as well as of intangible items. Current tangible assets including cash, accounts receivable, stock-in-trade are usually converted into cash within one year and sometimes can be used as a means of payment. On the other hand, current intangible assets consist of short-term investments in stocks and bonds.
Long-term intangible assets are not really visible and include such items as goodwill, patents, trademarks, copyrights, etc. These assets often are the most important factor for obtaining future incomes. For example, goodwill means an intangible asset which takes into account the value added to a business as a result of its reputation which cannot be really calculated. In contrast, the real estate (such as farm land, machinery, buildings and other physical objects) belongs to long-term tangible assets.
Liabilities are obligations that a company owes to another organization, to an individual (such as creditors and employees) or to the government. Like assets, liabilities are divided into current and long-term ones. Current liabilities are usually amounts that are paid within one year, including accounts payable, taxes on income and property, short-term loans, salaries and wages, and amounts of money owed to suppliers of goods and services. Concurrent liabilities often called long-term are usually debts, such as bonds and long-term loans.
The amount by which the total assets exceed total liabilities is known as the net worth which is usually called the equity for companies. When the company is a corporation, the equity means the investment interest of the owners (that is, the stockholders) in the organization's assets. The owners' equity can be increased either by investing more money in the company, or by earning a profit, and can be decreased because of the company's losses.
All companies keep proper accounting system in order to know whether or not they are operating profitably, each of the assets and the liabilities and the equity being shown in a company's accounts separately. The balance sheet prepared by the company's accountant is one of the important financial reports showing the value of the total assets, total liabilities and equity on a given date. The relationship of these main categories is represented by the fundamental accounting equation: assets (everything that is owned) are equal to liabilities (owed) plus equity (clear of debt).
ASSETS = LIABILITIES + EQUITY
As all 3 factors are expressed in terms of money, they are limited to items that can be given a monetary value. The accounting equation should always be in balance, so that one side must equal the other.
Ex. 1 Memorize the words.
accounting бухгалтерское дело, отчётность
accuracy точность, тщательность
balance sheet балансовый отчёт
bookkeeping бухгалтерия, счетоводство
copyright авторское право
consider рассматривать, считать
complete полный; завершать, заканчивать
data данные
draw up составлять (документ)
exceed превышать, превосходить
excess излишек; избыточный
exclude исключать
equal равный; равняться
equation уравнение, равенство
entry запись, статья; внесение (в документ)
goodwill нематериальные активы, деловая репутация
income statement отчёт о прибылях и убытках
include включать (в себя)
ledger гроссбух, главная бухгалтерская книга
owe быть должным, обязанным; быть в долгу
posting проводка, перенос в бухгалтерскую книгу
record запись, учёт; записывать, регистрировать
retained earnings нераспределённая прибыль
statement of cash flows отчёт о денежных потоках
stock-in-trade товарно-материальные запасы, инвентарь
sufficient достаточный
trademark фабричная (торговая) марка
trial balance пробный баланс
Ex. 2 Define parts of speech.
potential, tangible, current, owner, profitably, equation, balance.
Ex. 3 Find pairs of synonyms in A and B.
A: liability, current, concurrent, equity, company, balance;
B: long-term, corporation, debt, equilibrium, net worth, short-term.
Ex. 4 Find pairs of antonyms in A and B.
A: current, asset, receivable, profitable, together, owned;
B: payable, long-term, separately, owed, unpaying, liability.
Ex. 5Answer the following questions.
1. What does the term "asset" mean?
2. How can the company's assets be classified?
3. How can "goodwill" increase the company's profits?
4. What liabilities does a company have? How are they classified?
5. How is the net worth calculated?
6. What accounts should be kept by the company?
7. What is the main accounting equation?
8. Why is it important to keep the proper accounting system?
Ex. 6 Match upnumbers and letters.
1. To be clear of debt
2. If current assets are less than current liabilities,
3. The money obtained from selling a company's current tangible assets
4. Although accounting is one of the oldest professions in the world,
5. Both a person and a company can own such items of value as
6. In England the three major sections of the balance sheet,
7. In order to operate the business properly one should take into account
8. Accountants are supposed to deal with
9. The amount of the owner's investment interest
10. The Copyright Act adopted by the US Congress in 1976
a. is usually calculated at the end of a fiscal year.
b. such as assets, liabilities and equity are likely to be arranged vertically.
c. a stock, a plot of land, a building or a machine.
d. created the legal foundation protecting the work of many industries, for example music recording.
e. the company should sell off part of its receivable accounts.
f. the management of financial resources and the representation of
other aspects of the business in financial terms.
g. it took much time to find satisfactory general methods of keeping
finance records.
h. that the accounting system is just one of means of processing
information in an organization.
i. is unlikely to cover the company's debts.
j. the stockholders can't expect any dividends
Ex. 7 Comment on the following.
a) What is common and what is different in a person's and a company's assets and liabilities? b) How is the copyright protected in Russia?