divergencen отклонение
Ex. 13. Read the dialogue, sum up its content and act it out:
Accounting Methods
American: Accounting is a kind of data processing and recording. In my country it's usually the accountant who decides on the form which this recording shall take and on the methods to be used.
Russian: Do you mean that in writing financial statements for stockholders and lenders accountants can make the firm look strong and healthy and when preparing tax returns, on the other hand, they can make the firm look poor and weak?
Am.: Accountants prepare financial statements according to rules set by law and by the accounting profession itself. Often the rules allow more than one way of reporting information.
R.: Accounts can be kept on an accrual or a cash basis. How do the two methods differ in real life?
Am.: Firms that keep their accounts on an accrual basis report costs and revenues in the year in which sales are made even if the customers do not pay until later. Those that keep their accounts on a cash basis report costs and revenues in the year in which payment is made.
R.: I know that each method has its pros and cons. But how does each method affect the way the outside users of the income statement and the balance sheet see the image of the company?
Am.: The accrual basis matches the income statement more closely to the balance sheet and accrual basis accounts show rapidly rising income. But little of the income is cash!
R.: What is more, the accrual basis assumes that all accounts receivable will be collected, but in reality some may not.
Am.: For these reasons, some people think the cash basis is a more prudent way to draw up an income statement. Accountants have also to decide how to determine the monetary value of an item included in a financial statement.
R.: What problems can arise here?
Am.: Assets can be recorded at the amount of cash paid to acquire them at the time of their acquisition.
R.: At the historical cost, in other words.
Am.: Yes. In addition, current replacement cost and net realizable value can be used.
R.: Are goods held in inventory another problem area?
Am.: Yes, there are two ways of dealing with inventories. One is FIFO, the other is LIFO.
R.: Theoretically, Г believe, we can argue in favour of both methods. Which works better in real life?
Am.: In recent years many firms have switched from FIFO to LIFO.
R.: Do you have an explanation?
Am.: Yes. During periods of inflation, LIFO results in a higher cost of goods and, hence, a lower reported income. As a result a firm that uses LIFO pays less income tax.
Words you may need:
accounting methodметод учета
cash basisметод записи доходов и издержек на счетах только при их поступлении и выплате; кассовая база
pros and consза и против
the image of a companyрепутация, имидж компании
monetary value of an itemстоимость операции (статьи в балансе) в денежном выражении
current replacement costтекущая восстановительная стоимость
net realizable valueчистая (потенциальная) стоимость реализации
inventories pl товарно-материальные запасы
FIFO«первая партия на приход – первая в расход»
LIFO«последняя партия в приход – первая в расход»
Ex. 14. Give extensive answers to these discussion questions:
1. What is the role of accountancy in a free-market economy?
2. What is managerial accounting?
3. Who needs the information provided in financial statements?
4. How are accountants classified in Russia?
5. What services do public accountants offer their clients?
6. What is done in this country to create a strong and respected professional body of accountants?
7. What accounting system is most widely practised in the world?
8. In what way does cash basis accounting differ from accounting on an accrual basis?
9. What do you think of the problem of harmonizing national accounting standards?
In order to get prepared for participation in the class discussion of the questions, write a short paragraph, explaining:
a) What accounting is and what role it plays in a free-market economy.
b) What sort of statement the balance sheet is.
c) What sort of statement the income statement is.
d) The difference between the two branches of accounting.
e) Accounting principles.
f) The functions of the Chart of Accounts.
Ex. 15. Prepare a short talk on the following:
a) The work of public accountants, private accountants, and accountants who work for units of the government and non-for-profit firms.
b) Why do all firms need both fixed and working capital?
c) How is Russian accounting developing? Do any of the Big Eight have offices in Russia?
d) What are your own sources of funds? Earnings from employment? Contributions from parents or others?
e) If you are a student, describe the fixed capital and working capital of your college or institute. List some fixed assets that it owns.
Ex. 16. A company needs the chief accountant, who will:
– maintain accounts payable ledger
– supervise banking and cash activities, supply contracts, reconciliation of bank statements
– deal with local tax authorities
– work directly with the CFO
– supervise the accounting department
– cooperate with internal and external auditors
The requirements include:
excellent English
degree in accounting
knowledge of the Russian accounting system
familiarity with GAAP
proper computer skills
ability to work independently