U19 Handout E4BS Lecturer: Ng Thao Trang

UNIT 19: ACCOUNTING AND FINANCIAL STATEMENTS

AIMS
- Consider the different types of accounting and financial statements.
- Discuss a company’s financial results.

LEAD-IN
Q1. What is accounting?
- The process of …………………………………………………………...............
- The process includes ……………………………., …………………………, and
………………………. these transactions to oversight
……………………………., ……………………………., and
…………………………….…………………………….
Q2. What skills do you think accountants need?
Suggestion:
o soft skills (communication, analytical, industry knowledge, management traits,
critical thinking, system analysis, active learning, accuracy, concentration)
o hard skills (domain knowledge, professional qualifications, stay-up to data,
knowledge of accounting software)
o experience.
Your answer:
………………………………………………………………………………………………
………………………………………………………………………………………………
……………………………………………………………………………………..............
Q3. Do you think you have these skills? (What are assets and liabilities?)
Q4. If you have not yet chosen a career, could it be accountancy?
Your answer:
………………………………………………………………………………………………
………………………………………………………………………………………………

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U19 Handout E4BS Lecturer: Ng Thao Trang

………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………

VOCABULARY
Question: Which of these areas of accounting do you find the most interesting?
Suggestion
Managerial/management and cost accounting require analytical ability and
mathematical competence. Somewhat higher position in a company.
Tax accounting requires a thorough knowledge of tax laws and accounting combined
with a desire to help clients reduce their tax liabilities.
Auditing requires strong analytical skills and honesty.
Creative accounting (also known as “window dressing”) requires the same but with the
substitution of dishonesty for honesty.
Your answer:
………………………………………………………………………………………………
………………………………………………………………………………………………
……………………………………………………………………………………..............
………………………………………………………………………………………………
* Note:
o Statement of financial position (~Balance sheet)
o Profit and loss statement / Profit and loss account (~Income statement)
o Funds flow statement / Statement of funds flows / Source and application of funds
statement / Statement of changes in financial position (~Cash flow statement)
o British company law also requires companies to produce a fourth statement, a
Statement of total recognized gains and losses or STRGL, showing any gains and
losses that are not included in the profit and loss account, such as the revaluation
of fixed assets.
4. Word combination
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U19 Handout E4BS Lecturer: Ng Thao Trang

………………………………………………………………………………………………
………………………………………………………………………………………………
……………………………………………………………………………………..............
………………………………………………………………………………………………
………………………………………………………………………………………………

READING 1: GOOGLE INC. BALANCE SHEET

What is a balance sheet?
o A balance sheet is a …………financial statement………………………… that
reports a company's ………assets……......, ……liabilities………......, and
……………..shareholder...equity.…………….......
o The balance sheet is one of the three core financial statements that are used to
………evaluate a business……......……………......…………….......
o It provides a snapshot of a ………company’s……...... ……finances………......
(what it ……owns………...... and ………owes……......) as of the date of
publication.
o The balance sheet adheres to …………an equation…......……………...... that
equates ………assets……...... with the sum of …………shareholder equity…......
and ……liabilities……….......
o Fundamental analysts use balance sheets to ………calculate financial
ratios……......……………......……………......

Recap
- ..................................................: also known as marketable securities or temporary
investments are financial investments that can easily be converted to cash,
typically within 5 years
- Accounts payable: money owed to ................. for ................. made on ................
- Shareholder’s equity: all the money belongs to the ..............................................

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U19 Handout E4BS Lecturer: Ng Thao Trang

- ............................................: the value of a company's assets that are cash or can be

converted into cash immediately.
- ............................................: money that a company had paid in advance for goods
and services:
- Goodwill: the difference between the ....................... of acquired companies and
their .........................................
- Additional Paid-in Capital: capital that shareholders have contributed to the
company above the ................. or ..............................................
- Total liabilities: the total amount of money .......... that the company will have
to ...........................
- Accrued Expenses: expenses such as .................., ...................., and .................
that have not yet been paid at the date of the balance sheet.
- The two figures have to be the same: total ......................... and
total ...............................................................

LISTENING: VALUING ASSETS

Listen to Richard Barker talking about valuing assets and answer the questions.
1. What examples does Richard Barker give of assets that are difficult to value?
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
2. How does he define a company’s annual profit and loss?
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
3. Why is the estimated value of an airport runway probably not very objective?
.................................................................................................................................
.................................................................................................................................

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U19 Handout E4BS Lecturer: Ng Thao Trang

.................................................................................................................................
4. How does he define or explain depreciation?
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................

TAPESCRIPT (Track 2.5)

So, a company’s (1) ....balance sheet..........................., in principle, is intended to give
you the (2) .........a.....value of the company.................................................................., but
in practice, some (3) ...........assets.................... are very (4) ...................easy to
value........................., and some are very (5) ..........difficult to value.......................
So, if you hold some (6) .......shares........................ in another company or something, or
you hold some money in a (7) ...................bank account..........................................., this is
very easy to value.
On the other hand, if your assets comprise research and development, or the people for
that, then it’s in principle very difficult to (8) ........put a value.............................. on those
things. And when you (9) ............measure the profit.................................................. of a
company, what you’re trying to do is measure a (10) .............change in
value................................................., so the difference between what a company is worth
at the (11) .beginning of the year............................................, and what is worth at the
(12) ...........ending of the year..................................................., is that the
(13) ..........profit..................... that it makes, or the (14) ................loss............... that it
makes. And if it’s difficult to measure the (15) .............value of the
assets................................................ in the first place, it's also difficult to measure
whether a company’s making profit or not.
So, an example might be ... take an airport and a runway on an airport. Well, what’s a
runway worth? Would be one question. You could estimate that maybe, you could
estimate how long you think the airport will (16) ...........operate for...................., how
many planes will (17) ......land on it........................., what the value of one airport will be,

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U19 Handout E4BS Lecturer: Ng Thao Trang

what the value of Heathrow would be in comparison with the value of Gatwick, for
example. But it’s actually quite a (18) ............subjective thing................... to measure.
And then you’ve got to (19) .............figure out.................., well, how long is this thing
going to last, because every year you want to take (20) .........depreciation......................
on that runway and charge it against profit – you want to take a
(21) ......reduction......................... in the value of the runway, and if you think the runway
will last 25 years, then you will (22) ..............depreciate................. it four times as
quickly as if you think it will last 100 years.
So, there are lots of (23) .........estimation...................... and ...........judgment....................
in accounting because the value of an asset depends upon the future
(24) .............uncertain events................................, and those uncertain events, by their
very nature, can’t be estimated very easily.

NEW VOCABULARY
value v to give a judgment about how much money something might
be sold for / to consider something important.
Comprise v to have things or people as parts or members; to consist of.
Bao gom
runway n a long, level piece of ground with a specially prepared
smooth, hard surface on which aircraft take off and land.
subjective adj influenced by or based on personal beliefs or feelings, rather
than based on facts.
objective based on real facts and not influenced by personal beliefs or
feelings.
Figure out phr. to understand or solve something. / to calculate an amount.
verb
n a loss of value, especially over time.
depreciation

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U19 Handout E4BS Lecturer: Ng Thao Trang

v
depreciate
uncertain adj unclear, or not sure.

DISCUSSION QUESTIONS
Q1. How would you put a value on your college or university? What are its major
assets - building and equipment, or people and their skills, knowledge, and
reputations?
Suggestion
o Financial resources: share capital, equity shares, etc.
o Human resources: teaching and research staff
o Material resources: machinery and technological tools, real estate (all campuses),
school facilities, etc.
o Intellectual resources: brand, reputation, copyrights, partnerships, software, etc.
Your answer:
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
Q2. In most countries, companies record the historical cost of their assets – their
original purchase price, and not their (estimated) current selling price or
replacement cost. Why?
Suggestion:
Historical cost: A historical cost is a measure of value used in accounting in which the
value of an asset on the balance sheet is recorded at its original cost when acquired by the
company.
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U19 Handout E4BS Lecturer: Ng Thao Trang

Original cost: Original cost is the total price associated with the purchase of an asset.
The original cost of an asset considers all of the items that can be attributed to its
purchase and putting the asset to use.
Current price: The current price is the most recent selling price of a stock, currency,
commodity, or precious metal that is traded on an exchange and is the most reliable
indicator of that security's present value.
Replacement cost: Replacement cost is a term referring to the amount of money a
business must currently spend to replace an essential asset like a real estate property,
investment security, or another item, with one of the same or higher value.
Your answer:
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
Q3. Should companies record raw materials, work-in-progress, and their inventory
of products ready for sale at their cost price, or their current market price (the price
at which they could be sold)?
Suggestion:
Raw material: Raw materials are materials or substances used in goods’ primary
production or manufacturing. Raw materials are commodities that are bought and sold on
commodities exchanges worldwide. Traders buy and sell raw materials in the factor
market because raw materials are factors of production, as are labor and capital.
Work-in-progress: The term work-in-progress (WIP) is a production and supply-chain
management term describing partially finished goods awaiting completion. WIP refers to
the raw materials, labor, and overhead costs incurred for products that are at various
stages of the production process.
Your answer:
.................................................................................................................................

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U19 Handout E4BS Lecturer: Ng Thao Trang

.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................

Q4. Give some examples of companies whose value largely derives from intangible
assets such as their well-known brands, or their good reputation?
Derive from sth (phrasal verb): to come from something.
Suggestion: Coca-Cola, Apple.
Your answer:
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................

READING 2: GOOGLE INC. INCOME SHEET

What is an income sheet?
o An income statement is one of the three (along with a balance sheet and statement
of cash flows) .......................................................... that reports a
company's ................................................... over a
specific ............................................
o .............................. = (..............................+ .............) – (............................+ ...........)
o Total revenue is the sum of both ................... and ................. revenues while total
expenses include those incurred by ........................ and ........................... activities.
o Revenues are not ............................... Revenue is earned and reported on the
income statement. Receipts (..............................or ..............................) are not.

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U19 Handout E4BS Lecturer: Ng Thao Trang

o An income statement provides .............................. into a company’s operations, the

efficiency of its .............................., .............................., and its ..............................
to ..............................

VOCABULARY
amortization n

inventory n

depreciation n

dividend n

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