UNIT 6

MONEY, BANKING AND CENTRAL BANKING

PREVIEW

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Consolidated financial statements of Vinamilk – 2019 – 2021

Items

I. Match the terms in column A with their definitions in column B

1. a share-draft account A. It is responsible for providing its nation's economy with
funds when commercial banks cannot cover a supply
2. Open market
shortage.
operations - What does “It” refer to?
- Explain the statement “commercial banks cannot cover a
3. the money supply
supply shortage.”
4. a "NOW account". B. The foremost monetary institution in a market
economy, often owned by the government.
5. the lender of last resort C. the entire stock of currency and other liquid instruments
circulating in a country's economy as of a particular time.
6. A demand deposit - What does “currency” refer to?
- What do “other liquid instruments” refer to?
7. the reserve requirement
D. the percentage of the bank’s deposits that the central
8. A time deposit bank requires other banks to keep as a reserve.
E. a version of a checking account, offered by a credit
9. the central bank union instead of a bank.
- What is a credit union?
10. trust account (trust F. an interest-earning bank account with which a customer
is permitted to write drafts against money held on deposit.
funds)
- Which words can be used instead of “customer”?
- For what purposes does a customer write drafts?

G. the buying and selling of government securities in order

to expand or contract the amount of money in the banking
system.
- Who buys and sells government securities?
- Synomyms of “expand”, “contract”, “the amount of
money in the banking system.”
 H. A savings account established under a trust agreement
whereby a trustee administers the funds for the benefit of
one or more beneficiaries.
I. an account from which deposited funds can be
withdrawn at any time from the depository institution
K. an interest-bearing bank deposit account that has a
specified date of maturity, such as a savings account or
certificate of deposit (CD)

1-E 2-G 3-C 4-F 5-A 6-I 7 - D 8 - K 9 - B 10 - H

What is a credit union?/ vs. credit funds – quỹ tín dụng

A credit union is a financial institution that offers its members low-interest loans.
A credit union is a type of financial cooperative that provides traditional banking services.
Ranging in size from small, volunteer-only operations to large entities with thousands of
participants spanning the country, credit unions can be formed by large corporations,
organizations, and other entities for their employees and members.
Topic questions:
- What are differences between share draft accounts and checking accounts?
- What are differences between NOW accounts and checking accounts?
- What are differences between demand deposits and time deposits?
- What do time deposits include?

It is responsible for providing its nation's economy with funds when commercial banks
cannot cover a supply shortage. =
The central bank makes loans to other banks when they have a shortage of reserves to deal
with withdrawals of depositors.

Money (n) tiền tệ

Currencies of different countries – đồng tiền của các nước
Cash – tiền mặt = coins and paper notes (tiền xu và tiền giấy) = legal tender: tiền pháp định
Attract / contract (v)
Expand = increase > < contract = decrease
Open market operations refer to the Central Bank’s the buying and selling of government
securities (mostly government bonds) in order to expand (increase) or contract (decrease)
the amount of money in the banking system – the money supply

Reserve requirements are needed in case the depositors may make early withdrawals.
Measuring the Amount of Money in Circulation
The money supply is the total quantity of money in the economy at any given time.
Economists measure the money supply because it is directly connected to the activity taking
place all around us in the economy. In addition, the Federal Reserve's Board of Governors
and the Federal Open Market Committee use this information as the basis of their monetary
policy. What we're talking about in this lesson is: how do we measure the money supply?

While most people think that money supply is one big pile of cash in the economy,
economists look at it very specifically. We can define the money supply in three different
ways - M1, M2 and M3.

M1 is the narrowest definition of money. M1 consists of coins and currency in circulation,

checking accounts and traveler's checks. – séc du lịch

M2 is a more broad definition of money than M1. M2 = M1 + small savings accounts,

money market funds and small time deposits. (tiền gửi có kỳ hạn)

M3 is even more broad and includes M2 + large time deposits, large money market funds
and repurchase agreements, which are financial instruments generally used by large
businesses and institutions. Since 2006, the Federal Reserve stopped using M3 - so now we
have M1 and M2.

These measures correspond to three definitions of money that the Federal Reserve uses.

Here's a snapshot of the money supply at the end of July 2012. As you can see, M1 consists
of around $1 trillion in currency, about $4 billion in traveler's checks and another $1.26
trillion in demand deposits at banks. These three make up M1, which totaled about $2.3
trillion. M2 takes M1 and adds several other things to it. When you add savings accounts,
small time deposits and small money market funds, you get a total of about $10 trillion,
which economists refer to as M2.

The Money Supply in Terms of Function

A sample snapshot of the money supply for one month
M1 M2 Money Supply Chart

Here's another way to think of these two measures of the money supply.

The money in M1 functions as a medium of exchange. When Bob deposits money into his
checking account, this is part of M1. He can withdraw this money at any time and use it to
buy stuff.
The money in M2 functions as a store of value. When Margie puts $10,000 into her savings
account, for example, she's using the money as a store of value. This money will earn
interest and help protect the purchasing power of her initial deposit.

initial deposit = principal (n) – tiền gửi ban đầu = vốn gốc
Questions for discussion:
Questions for details:
1. What is a deposit?
A deposit is a sum of money which is in a bank account or savings account, especially a
sum which will be left there for some time.
2. What is a demand deposit?
A demand deposit is a bank deposit from which withdrawals may be made without notice.
3. What is a time deposit?
A time deposit is a bank deposit from which withdrawals may be made only after advance
notice or at a specified future date.
A withdrawal is an amount of money that you take from your bank account.
Time deposit is a financial arrangement in which you put money in a bank account to earn
interest for a fixed period of time:
- They offer 2.7% on a one-year time deposit and 3.2% for a five-year time deposit.

What are differences between checking accounts and savings accounts?

Checking accounts (demand deposits)
Depositors can withdraw their money at
any time they want,
Checking accounts bear little or no
interest
Savings accounts (time deposits)
Depositors withdraw their money on the
due date, if they want to make an early
withdrawal of their money, they will get
no interest.

share draft accounts = checking accounts – tài khoản vãng lai

deposit (n) A deposit is a sum of money which is in a bank account or savings account,
especially a sum which will be left there for some time.
If you deposit (v) a sum of money, you pay it into a bank account or savings account.
- The customer has to deposit a minimum of £100 monthly.
Depositor (n) – người gửi tiền
A demand deposit is a bank deposit from which withdrawals may be made without notice
= checking accounts: tiền gửi không kỳ hạn
A time deposit is a bank deposit from which withdrawals may be made only after advance
notice or at a specified future date = savings accounts: tiền gửi có kỳ hạn
- A demand deposit/ a checking account bears little interest or no interest.
If something such as a bank account or an investment bears interest, interest is paid on it.
- The eight-year bond will bear annual interest of 10.5%.
an interest-bearing bank deposit account (n)
the depository institutions : các tổ chức nhận tiền gửi, such as banks, credit funds, mutual
funds, …
The balance of my ATM account is at least 100 VND.
- A NOW account, otherwise known as negotiable order of withdrawal account, is
an interest-earning bank account whereby the owner may write drafts against the
money held on deposit. Mutual savings banks, commercial banks, and savings and
loan associations offer NOW accounts.
- Tài khoản lệnh rút tiền khả nhượng (NOW) là một tài khoản ngân hàng thu lãi. Một
khách hàng có tài khoản như vậy được phép viết hối phiếu đối với tiền được giữ
bằng tiền gửi.
What is the difference between a checking account, a demand deposit account, and a
NOW (negotiable order of withdrawal) account?
- A demand deposit account is just a different term for a checking account. The
difference between a demand deposit account (or checking account) and a negotiable
order of withdrawal account is the amount of notice you need to give to the bank or
credit union before making a withdrawal.
- Most demand deposit accounts (DDAs) let you withdraw your money without
advance notice, but the term also includes accounts that require six days or less of
advance notice.
- NOW accounts are essentially checking accounts where you earn interest on the
money you have deposited. With a NOW account, the bank or credit union has the
right to require at least seven days written notice of a withdrawal, though this is
rarely done.
- Not all accounts that give you checks are “checking accounts.” Other deposit
products, such as money market accounts, may allow you to write checks, but they
are not generally suited for day-to-day business, given the restrictions on their use. In
addition, a lender may give you checks to access credit, such as a personal loan,
home equity loan, or other lines of credit. These types of checks allow you to access
your loan.
Sự khác nhau giữa tài khoản hối phiếu cổ phần (share draft accounts) và tài khoản
vãng lai (checking accounts)
Một điểm khác biệt chính giữa tài khoản hối phiếu cổ phần và nhiều tài khoản vãng
lai là tài khoản hối phiếu cổ phần thu lãi. Liên minh tín dụng trả lãi và cổ tức cho các cổ
phiếu do chủ tài khoản nắm giữ, do đó tiền gửi ở trong liên minh tín dụng được chi trả cổ
tức và tiền lãi được gộp hàng quí.
Từ năm 1933 đến 2011 tại Hoa Kỳ, tài khoản tiền gửi vãng lai không kì hạn không
được phép thu lãi. Ngày nay, việc cấm lãi tiền gửi không kì hạn đã được gỡ bỏ, một số tài
khoản vãng lai của ngân hàng cung cấp lãi suất.
Một điểm khác biệt chính nữa giữa tài khoản hối phiếu cổ phần và tài khoản vãng lai
là nhiều ngân hàng yêu cầu số dư tối thiểu hàng tháng hoặc tính phí hàng tháng để duy trì
tài khoản vãng lai.
Liên minh tín dụng không tính phí thành viên hàng tháng hoặc yêu cầu số dư tối
thiểu trong tài khoản hối phiếu cổ phần. Điều này làm cho chúng trở thành một lựa chọn
hấp dẫn cho người tiêu dùng muốn tránh phải trả phí hoặc phải duy trì số dư tối thiểu, đặc
biệt là hiện nay nhiều liên minh tín dụng đã mở cửa cho công chúng.

READING 1
THE BANKING SYSTEM IN THE ECONOMY
THE CENTRAL BANK
The foremost monetary institution in a market economy is the central bank. These
are usually government owned institutions, but even in countries where they are owned by
the nation’s banks (such as US and Italy), the responsibility of the central bank is for the
national interest.
Most central banks in the present-day world perform one of the following functions:
(1) they serve as the government’s banker, (2) they act as the banker of the banking system,
(3) they regulate the monetary system for both domestic and international policy goals, and
(4) they issue the nation’s currency.

Questions for details

1. What is a demand deposit?
2. What is a time deposit?
3. What is a NOW account?
4. What is a share-draft account?
5. What are 04 functions of the central bank?
6. What does the central bank do specifically when it functions as the government’s
banker?
 7. What does the central bank do specifically when it functions the banker of the
banking system?
8. How does the central bank regulate the monetary system?
9. What are functions of commercial banks?
10. What are functions of insurance companies?
11. What does a nation’s money supply include?
12. How can commercial banks make/ earn profits?
Topic question:
What are functions of central banks?

As banker to the government, the central bank collects and disburses government
income, manages the issues and redemption of government debts, advises the government
on all matters pertaining to financial activities, and makes loans to the government. As
banker to the nation’s banks, the central bank holds and transfers banks’ deposits,
supervises their operations, acts as a lender of last resort, and provides technical and
advisory services. Monetary policy for both domestic and foreign purposes is implemented
and, in many countries, and decided by the national banking authorities, using a variety of
direct and indirect controls over the financial institutions. Coins and notes that circulates as
the national currency are usually the liability of the central bank.

- The Central bank acts as a lender of last resort. = the CB makes loans to other banks
- The Central bank implements/ runs/ supervises monetary policy
Vocabulary
To disburse an amount of money means to pay it out, usually from a fund which has been
collected for a particular purpose. – giải ngân
- The aid will not be disbursed until next year. [be VERB-ed]
- The bank has disbursed over $350m for the project.

The national banking authorities = the central banks

Redemption (n) the act of paying back a loan:
redemption of debt/a loan/a mortgage
- The nation's largest jewelry retailer reported an 11% rise in earnings for the latest
quarter, boosted by higher sales and the early redemption of debt.

Central banks affect economic growth by controlling the liquidity in the financial
system. They have three monetary policy tools to achieve this goal.
 First, they set a reserve requirement. A reserve requirement, also known as the cash
reserve ratio, represents the minimum percentage of customer deposits that a bank should
hold as a reserve. The central bank can lower the reserve requirement, for example, in order
to enact expansionary monetary policy and encourage economic growth. The reduction
makes banks free to lend more of their deposits to other bank customers and earn interest.
These customers in turn deposit the loan proceeds in their own bank accounts, and the
process continues indefinitely. This increase in the supply of available funds lowers the
price of those funds (i.e., the lending rate), making debt cheaper and more enticing to
borrowers.
Second, they use open market operations to buy and sell securities from member
banks. It changes the amount of cash on hand without changing the reserve requirement.
They used this tool during the 2008 financial crisis. Banks bought government bonds and
mortgage-backed securities to stabilize the banking system. The Federal Reserve added $4
trillion to its balance sheet with quantitative easing. It began reducing this stockpile in
October 2017.

Chứng khoán bảo đảm bằng thế chấp trong tiếng Anh là Mortgage-Backed Security;
viết tắt là MBS.
Chứng khoán bảo đảm bằng thế chấp (MBS) là một khoản đầu tư tương tự như trái
phiếu được phát hành dựa trên cơ sở một hoặc một nhóm các khoản thế chấp. Các nhà đầu
tư vào MBS nhận thanh toán định kì tương tự như trái phiếu coupon.

Third, they set targets on interest rates (discount rates) they charge their member
banks. That guides rates for loans, mortgages, and bonds. Raising interest rates slows
growth, preventing inflation. That's known as contractionary monetary policy. Lowering
rates stimulates growth, preventing or shortening a recession. That's called expansionary
monetary policy. The European Central Bank lowered rates so far that they became
negative.
Charge (v) to ask an amount of money for something, especially a service or activity:
- How much/What do you charge for a haircut and blow-dry?
- The bank charged commission to change my traveller's cheques.
- [ + two objects ] They charge you $20 just to get in the nightclub.
To charge + prices/ fees

Monetary policy is tricky. It takes about six months for the effects to trickle through
the economy. Banks can misread economic data as the Fed did in 2006. It thought the
subprime mortgage meltdown would only affect housing. It waited to lower the fed funds
rate. By the time the Fed lowered rates, it was already too late.
 But if central banks stimulate the economy too much, they can trigger inflation.
Central banks avoid inflation like the plague. Ongoing inflation destroys any benefits of
growth. It raises prices for consumers, increases costs for businesses, and eats up any
profits. Central banks must work hard to keep interest rates high enough to prevent it.

COMMERCIAL BANKS
A great deal of the money in circulation is created by commercial banks (NOW
accounts in savings banks and share drafts in credit unions are now considered to be part of
a nation’s money supply).

What does a nation’s money supply include?

- Cash (ATM accounts)
- Checking accounts (demand deposits)
- NOW accounts
- Share draft accounts (checking accounts offered by credit unions)
(They can act as a means of payments, so they are liquid)
- Savings accounts (time deposits)

You will recall that most of the money in circulation consists of demand deposits or
“checkbook money”. Demand deposits are commonly known as checking accounts.
Demand deposits are a form of money because they can be used to pay for goods and
services. The ability of commercial banks to maintain and create demand deposits by loans
and investments influences the supply of money in a nation’s economy.
Banking is a business in which the main product offered for sale is money. As in
other businesses, the incentive in commercial banking is to earn profits. As for the case of
commercial banking, a substantial amount of business of commercial banks comes from
loans made to businesses. When a business firms borrows a sum of money, the bank places
it on the deposit in the firm’s checking account. The business withdraws the money as it
needs it.

Make a loan/ loans to sbd: cho ai vay tiền

Question:
What are functions of commercial banks?
Commercial banks receive deposits from many depositors who have idle money without
immediate use, as well as make loans to their customers (businesses or individuals)
How can commercial banks make/ earn profits?
Interest rates are divided into:
- bid rates (borrowing rates) – lãi đi vay – the interest rates that commercial banks pay
to depositors
- offer rates (lending rates) – lãi cho vay – the interest rates that commercial banks
charge for loans to businesses and individuals.
Often, offer rates are higher than bid rates, so commercial banks make/ earn profits.
Các ngân hàng kiếm lời dựa trên chênh lệch giũa lãi xuất cho vay và lãi xuất đi vay.
Banks earn profits based on the difference between offer rates and bid rates.

OTHER FINANCIAL INSTITUTIONS AND THEIR FUNCTIONS

In addition to the most commonly known financial institutions such as the
commercial banks and the central bank mentioned above, there are many other types of
financial institutions which exists in a market economy. Here are some of them.

Savings institutions – tổ chức nhận tiền gửi tiết kiệm.

There are three main forms of saving institutions: mutual savings banks, savings and
loans (or building and loan) associations, and savings department in commercial banks.
These institutions take the money for which people have no immediate need and place it in
personal savings deposits. Savings institutions may request that depositors give notice of
intent to withdraw funds, although they do not often do so. Because of this requirement,
savings accounts are called time deposits so as to distinguish them from demand deposits
(checking accounts), from which money may be withdrawn at the depositor’s will.
Personal trusts (trust funds)
Trust companies and the trust departments of commercial banks invest the funds of
people with financial security who want to provide income for their families. The money
deposited in these institutions is invested in many different types of securities providing an
assured return – lãi được đảm bảo; speculative securities are usually avoided (tránh đầu tư
vào chứng khoán đầu cơ). It is important to note that these personal trusts must not be
confused with industrial trusts.
Insurance companies – Công ty bảo hiểm – act as financial intermediaries (trung gian
tài chính)
The purpose of insurance companies is to allow people to pool their resources in
order to minimize the risk associated with accident, sickness, death, and other unpredictable
circumstances. Although the money these companies collect must be paid out at some time
(compensation), they control huge sum of money, most of which is placed in long term
investments. A large portion is put into bonds and mortgages, although significant
investments are made in real estates and stocks.
Insurance companies collect a huge amount of insurance premium regularly

pool their resources = invest their incomes by buying insurance (the insurance
buyers have to pay regular insurance premium (phí bảo hiểm) to the insurance company.)
compensation – tiền bồi thường
the risk = losses – tổn thất

Read the text and choose the best answer A, B, C or D for each question
1. What do you think is the main idea of the reading text?
A. The different functions of the central bank
B. The roles of commercial banks and other financial institutions
C. Banking and financial institutions
D. The supervision of the central bank on all other banks
2. What is NOT the functions of the central banks?
A. They print money and pump into the circulation.
B. They make investments in other banks.
C. They make loans to other banks.
D. They regulate the monetary policy tools.
3. As a banker to the government, what does the central bank do?
A. The central bank makes uses of government income. (collect + disburse)
B. The central bank deals with government debts (redemption of government depts.)
C. The central bank makes loan to the government.
D. All of the above
4. As a banker to the nation’s bank, what does the central bank do?
A. The central bank holds and transfers banks’ reserves.
B. The central bank supervises operations of other banks in the economy.
C. The central bank makes loans to other banks and charges discount rates for these
loans.
D. All of the above
5. What is NOT the tool of monetary policy?
A. Government securities
B. Reserve requirements
C. Open market operations
D. Interest rates
6. What is the main function of commercial banks?
A. To accept deposits and give loans.
B. To make issuance of the nation’s currency.
C. To regulate the money supply in the economy.
 D. To regulate interest rates.
7. What do a bank’s deposits consist of?
A. Savings accounts and time deposits
B. Demand deposits and checking accounts
C. Time deposits and demand deposits
D. NOW accounts and current accounts
8. From what type of deposits do depositors withdraw their money at any time?
A. Savings deposits
B. Demand deposits
C. Time deposits
D. Fixed deposits

VOCABULARY EXERCISES
Fill in the gaps in the sentences using words/ phrases in the box.

float Bill of Exchange (B/E) clearing simple interest

stabilize Letter of credit (L/C) legal money compound interest
borrowers lenders exchange rate demand deposit
sight draft time draft transactions

1. As a national monopolist – người độc quyền trong 1 quốc gia - in

issuing......................., the central bank is the banker’s bank that controls and that is the
creditor (chủ nợ) of all financial institutions in a nation.
2. …………………………. are commonly known as checking accounts.
3. The primary function of a bank today is to act as an intermediary between depositors
and ………………..
4. Bank often cooperate with government in efforts to ……… economy and prevent
inflation.
5. A ……………………..is an order sent by the drawer (the person asking for money) to
the drawee (the person paying) stating that the drawee will pay unconditionally on
demand or at a specified time the amount shown on the bill.
6. A…………….. is an agreement in which a customer (applicant for L/C) asks a bank
(L/C issuing bank) to make a commitment to pay or accept the bill in favour of a third
party (beneficiary) when he/she presents the issuing bank the correct documents.
7. Interest is usually paid only on the principal, that is, on the sum of money loaned, and it
is called (3)……………..
8. In many circumstances, central bank intervention will have the desired effect of
establishing or restoring ………………….
9. When the government allows its currency to……………., the central bank might still
intervene to buy or sell its currency, if the government considers that the exchange rate
for the currency has appreciated or depreciated to an unjustifiable or undesirable level.
10. ………….. has become essential to banks because it makes payment between banks or
branches simpler, cheaper and more efficient.

WRITING
I. Match the terms in column A with their definitions in column B
1. cash dispenser (ATM) A. An arrangement by which a customer can withdraw
more from a bank account than has been deposited in it,
2. home banking
up to an agreed limit, interest on the debt is calculated
3. standing order or direct daily.
B. A card which guarantees payment for goods and
debit
services purchased by the cardholder, who pays back the
4. overdraft bank or finance company at a later date.
C. A computerized machine that allows bank customers
5. mortgage to withdraw money, check their balance, and so on.
6. deposit account (GB) or D. A fixed sum of money on which interest is paid lent
for a fixed period, and usually for a specific purpose.
time or notice account (US) E. An instruction to a bank to pay fixed sum of money to

7. credit card certain people or organization at stated time.

F. A loan, usually to buy property, which serves as a
8. cash card security for the loan
G. A plastic card issued to bank customers for use in cash
9. loan
dispensers.
10. current account (GB) or
H. Doing banking transactions by telephone or from
checking account (US)
one’s own personal computer
I. One that generally pays little or no interest, but allows
the holder to withdraw his or her cash without any
restrictions
K. One that pays interest, but usually can’t be used for
paying cheques (GB) or checks (US) and on which notice
is often required to withdraw money.

II. Read the following text and write a summary.

Commercial banking
Commercial or retail banks are businesses that trade in money. They receive and holds
deposits, pay money according to customers’ instructions, lend money, offer investment
advice, exchange foreign currencies, and so on. They make a profit from the difference
(known as a spread or a margin) between the interest rates they pay to lenders or depositors
and those they charge to borrowers. Banks also create credit, because the money they lend,
from their deposits, is generally spent (either on goods or services, or to settle debts), and in
this way transferred to another bank account often by way of a bank transfer or a cheque
(check) rather than the use of notes or coins from where it can be lent to another borrower,
and so on. When lending money, bankers have to find a balance between yield and risk, and
between liquidity and different maturities.
Investment banking
Investment banks, called merchant banks in Britain, raise funds for industry on the various
financial markets, finance international trade, issue and underwrite securities, deal with
takeovers and mergers, and issue government bonds. They also generally offer stockbroking
and portfolio management services to rich corporate and individual clients. Investment
banks make their profits from the fees and commissions they charge for their services.
Universal banking
In some European countries (notably Germany, Switzerland and Austria) there have always
been universal banks combining deposit and loan with share and bond dealing and
investment services, but for much of the 20th century, American legislation enforced a strict
separation between commercial and investment banks. The Glass-Stegall Act, passed during
the Depression in 1934, prevented commercial banks from underwriting securities. The act
was repealed in 1999. The Japanese equivalent was abolished the previous year, and the
banking industry in Britain was also deregulated in the 1990s, and financial conglomerates
now combine the services previously offered by banks, stockbrokers, and insurance
companies.
Interest rates
A country’s minimum interest rate is usually fixed by the central bank. This is the discount
rate, at which the central bank makes secured loans to commercial banks. Banks lend to
blue chip borrowers (very safe large companies) at the base rate or the prime rate; all other
borrowers pay more, depending on their credit standing (or credit rating, or
creditworthiness): the lender’s estimation of their present and future solvency. Borrowers
can usually get a lower interest rate if the loan is secured or guaranteed by some kind of
asset, known as collateral.

READING 2
MONEY AND ITS FUNCTIONS
 The concept of money: Money is a anything accepted by
general consent as a medium of economic exchange. It is
the medium in which prices and values are expressed. It
circulates from person to person and country to country,
then facilitating trade, and it is the principal measure of
wealth.

Consent (n) sự đồng nhất, nhất trí

Circulate (v) luân chuyển
Facilitate (v) = simplify = make sth simpler
Trade (v + n) thương mai – foreign trade/ international trade
Definition of money
Money is anything accepted by general consent as a medium of economic exchange.
I> Four functions of money:
+ means of payments = medium of exchange
+ measure of value = unit of account
+ store of value
+ standard of deferred payments

Questions for details

- Definitions + as each function of money, how is money used? / for what purposes?
1. What is a medium of exchange?
- A medium of exchange is anything that is widely accepted in payment for goods and
services and in settlement of debts
2. How is money used as a means of payment?
- As a medium of exchange, money is used to make payments for goods & services and
settlements for debts.

- As a ………………, money is used to make payments for goods & services and settlements
for debts.
A. store of value B. measure of value
C. medium of exchange D. standard of deferred payments
- He borrowed a sum of money from his parents to ……………. his debts
A. pay B. settle C. make D. buy

3. What is a measure of value?/ a unit of account?

- Measure of value/ unit of account is the unit in which prices are quoted and accounts are
kept.
4. For what purposes is money used as a measure of value?
- As a measure of value, money is used to quote prices of things offered at the market; or to
measure the value of goods and services.
5. What is a store of value?
- A store of value is anything used to make purchases in the future/ is anything which is
saved for future use.
6. Does money function as a perfect store of value? Why?
- Money doesn’t function as a perfect store of value because we can’t buy the same items
next year as we can today with the same amount of money due to unavoidable inflation.
Because money loses its value over time/ Inflation is unavoidable.

7. What are better stores of value?

Properties - bất động sản - , gold, and some other types of investments such as shares of big
companies, or strong foreign currencies can better function as a store of value.
8. What is a standard of deferred payments?
- A standard of deferred payments is unit of account over time
9. For what purposes is money used as a standard of deferred payments?
- As a standard of deferred payments, money is used to make regular repayments for things
in installment buying or make settlements for debts in the future.

- exchange sth for sth

- exchange (v + n) = trade
Foreign exchange market
- in exchange for sth
- Pay for goods and services – payments
- make payments for sth
- settle debts – settlements of debts
- to quote (v) sth – to quote prices for goods and services = price sth (v) định giá cho cái gì
- pricing strategies: chiến lược định giá
- installment buying (n) hình thức mua trả góp:
A deposit – tiền đặt cọc - is paid for the first time, then regular repayments – khoản trả góp
định kỳ (including principal and interests) are made.
- buy sth on credit
Ví dụ:
- I bought this car on credit.

The functions of money: All modern societies use money. With money people can easily
trade goods and services with one another. That is money promotes trade. Money serves as
a medium of exchange, a measure of value or a unit of account, a store of value and a
standard of deferred payments. We discuss each of these functions of money in turn.

Serve as = function as – thực hiện chức năng

How were goods exchanged in primitive societies?
In primitive societies, goods were barted/ exchanged directly. It is difficult and
unconvenient to barter goods and services. Barter takes a lot of time and energy.

Barter (v) to exchange goods or services for other things rather than for money:
barter (sth) for sth
- Cheap manufactured goods were bartered by the traders for all kinds of tropical
products.
Exchange sth for sth

Money as a Medium of Exchange: Workers exchange labour services for money.

People buy or sell goods in exchange for money. Money is a medium through which people
exchange goods and services.
What is a medium of exchange? A medium of exchange is anything that is widely
accepted in payment for goods and services and in settlement of debts. Money is the most
common medium of exchange.

What are benefits of money as a means of payment?

Money as a medium of exchange makes the trading process much simpler, cheaper, and
much more convenient. The use of money as a means of payment helps people to save their
time and energy.

With money, you don’t need to find someone who has the things you want and wants the
things you have. And it is much simpler and more convenient to exchange goods and
services for money and use money in exchange for goods and services.

Make + sth + adj

money as a means of payment has benefit of being more convenient
The use of money as increase the efficiency of the economy
- Đặc điểm của tiền (Features/ Characteristics of money)
Revolution of money
Barter => common goods used as means of payment (animals, animal teeth, animal skin,
etc.) => gold coins / silver coins => metal coins, paper notes => checks, bills of
exchange, L/C => E-money (mobile payments)
The latter types are safer to bring along, more convenient to use.
The latter taypes are easier to be divided into different denominations.

Denomination (adj) a unit of value stated on a coin, bank note, etc.:

high/large denomination notes
small/low denomination coins
- The machines take coins of any denomination.

Money as a Measure of Value: The second function of money is as a measure of

value. Just as we need measurements for distances, weights, and energy, so we need
measurements for the value of things offered at the market. Money measures value in its
units of accounts. The unit of account is the unit in which prices are quoted and accounts
are kept. In Britain, prices are quoted in pound sterling. In the United States dollar, and in
Vietnam VND. The use of such units helps simplify the exchange of goods.

Currencies of countries are used as units of accounts.

It is more convenient to use one currency as medium of exchange and unit of account at the
same time.

Money as a Store of value: Money also functions as a store of value. Money is a

store
of value because it can be used to make purchases in the future. This means that if we
choose not to buy with our money today, we can save it to buy in the future. If money were
a perfect store of value, we could buy the same items next year as we could today with the
same amount of money. But money does function poorly as a store of value when there is
inflation in the economy.

Purchase (v) = buy

Purchase (U) = buying
Purchases (C) = goods & services bought

Money as a Standard of Deferred Payments: The last function of money is a

standard of deferred payments or unit of account aver time. When you buy
something but do not pay for it immediately, your payment is expressed in terms of
money to be paid in the future. With the wide use of installment buying, this function
of money has become increasingly important.
- In terms of + sth
-
II> Types of money
Revolution of money through the human history – sự tiến hóa của tiền
- Barter economy: kinh tế hàng đổi hàng/ trao đổi trực tiếp (no money)
- Common goods used as money such as sheep, animal teeth, …
- Gold coins/ silver coins (commodity money).
They are durable. (adj) – bền
- Token money:
+ metal coins
+ paper notes (banknotes)
Legal tender (n) tiền pháp định (metal coins, banknotes)
+ checks (cheques)
+ letters of credit: thư tín dụng – used to make payments for imports.
(banker’s acceptance: giấy bảo lãnh thanh toán của ngân hàng)
+ plastic cards (A- T- Teller M - Machine cards, visa cards, AE (American Express),
…
(credit cards/ debit cards)
+ E-money
The former types of money – the latter types
Each of the latter types of money is easier, safer and more convenient to use or to bring
along.

10. What is a barter economy?

- Barter economy is the economy in which goods and services are exchanged/ traded
directly.

Questions for topics:

1. What are differences between commodity and token money?
Commodity money Token money
- Examples: Examples
- Compare material value (giá trị vật chất
and monetary value (purchasing power –
sức mua)

2. Which function of money is the most important and why?

Among 4 functions, means of payments is the most important function.
 Different kinds of money: The most important types of money are commodity money,
and token money.
Commodity Money: Commodity Money is a useful good that serves as a medium of
exchange. As a result, the value of commodity money is about equal to the value of the
material contained in it. The principal materials used for this type of money have been gold,
silver and copper.
In ancient times various articles made of these metals, as well as of iron and bronze,
were used as money, while among primitive people such commodities as shells, beads,
elephant tusks, furs, skins, and livestock served as medium of exchange. The gold coins in
circulation in the US before 1933 were examples of commodity money.
Token Money: Token money is a means of payment whose value or purchasing power
as money greatly exceeds its cost of production or value in uses other than as money. A $10
note is worth far more as money than as a 3x6 inch piece of high quality paper. Similarly,
the monetary value of the most coins exceeds the amount you would get by melting them
down and selling off the metal they contain.
COMPREHENSION
COMPREHENSION QUESTIONS
QUESTIONS
1. What is the concept of “money”
2. What are the functions of money?
3. What is a medium of exchange?
4. How is money used as a medium of exchange?
5. How is money used as a unit of account? / a store of value and as a standard of
deferred payment?
6. What do you think is the most important function of money? And Why?
7. What are two main types of money?
8. Give some types of token money?
9. What are some main differences between commodity money and token money?
VOCABLARY EXERCISES
VOCABULARY EXERCISES
1. Complete the following passage with suitable words
Economists say that the invention of money belongs in the same category as the great
inventions of ancient times, such as the wheel and the inclined plane, but how did money
develop? Early forms of money were often (1) ………….. money-money that had value
because it was made of a substance that had value. Examples of commodity money are gold
and silver coins. Gold coins were valuable because they could be used in (2) ……….. for
other goods or services, but also because the gold itself was valued and had other uses.
Commodity money gave way to the next stage-representative money.
Representative money is a certificate or (3) …………. that can be exchanged for the
underlying commodity. For example, instead of carrying the gold commodity money with
you, the (4) …………. might have been kept in a bank vault and you might carry a paper
certificate that represents-or was “backed”-by the gold in the vault. It was understood that
the certificate could be (5) ………… for gold at any time. Also, the certificate was easier
and safer to carry than the actual gold. Over time people grew to trust the paper certificates
as much as the gold. Representative money led to the use of fiat money-the type used in
modern economies today.
Fiat money is money that does not have (6) ……….. value and does not represent an asset
in a vault somewhere. Its value comes from being declared “legal tender”-an acceptable
form of (7) …………. -by the government of the issuing country. In this case, we accept the
value of the money because the government says it has value and other people value it
enough to (8) ………… it as payment. For example, I accept U.S. dollars as income
because I’m confident I will be able to exchange the dollars for goods and services at local
stores. Because I know others will accept it, I am comfortable accepting it. U.S. (9)
…………. is fiat money. It is not a commodity with its own great value and it does not
represent gold-or any other valuable commodity-held in a vault somewhere. It is valued
because it is legal tender and people have faith in its use as money.
There have been many (10) ………….. of money in history, but some forms have worked
better than others because they have characteristics that make them more useful. The
characteristics of money are durability, portability, divisibility, uniformity, limited supply,
and acceptability.
2. Choose the best answers.
Question 1: Which of the following is not a function of money?
A. Measure of value.
B. Store of value.
C. Inflation stopper.
Question 2: When is money created?
A. When a bank customer signs the loan documents and the bank credits the customer's
account with the amount of the loan.
B. When, at the end of the month, a company pays the salaries of its employees using a
cash transfer.
C. When a customer repays a loan to the bank.
Question 3: Which body issues all the banknotes and coins in Finland?
A. The Finnish parliament.
B. Commercial banks.
C. Bank of Finland.
D. None of the above. All the banknotes and coins in Europe are issued exclusively by
the European Central Bank.
Question 4: You are about to purchase your first flat and need to take out a bank loan for
the purpose. When you take out a loan, the equivalent amount of money is created. Later,
when you repay your debt to the bank in full, a slightly larger amount of money than
originally created will cease to exist. Explain why.
A. Before you have repaid the loan in full, you have decided to buy a slightly bigger flat
for which you have had to take a new loan.
B. Because of the interest charged by the bank, the sum of euro that you pay back to the
bank is slightly higher than the loan received, and therefore the amount of money
destroyed bigger.
Question 5: When does the bank have a debt to you?
A. When you withdraw banknotes from an ATM.
B. When you deposit money into your own account.
C. When you pay your electricity bill with a cash transfer.
Question 6: What does central bank money consist of?
A. Banknotes and banks' deposits with the central bank.
B. The public's deposits with commercial banks.
C. The gold in the possession of the central bank.
Question 7: Which is higher overall: the amount of debts or the amount of receivables?
A. The amount of debts is always higher.
B. The amount of receivables is slightly higher.
C. Both exist in equal amounts.

WRITING
I. Translate two previous reading texts into Vietnamese
II. Translate the following texts into English

7 CHỨC NĂNG CHÍNH CỦA NGÂN HÀNG THƯƠNG MẠI

Các chức năng chính của ngân hàng thương mại là nhận tiền gửi từ công chúng và cho
vay. Tuy nhiên, bên cạnh các chức năng này, có nhiều chức năng khác mà các ngân hàng
này thực hiện. Tất cả các chức năng này có thể được chia thành các tiêu mục sau:
1. Nhận tiền gửi
2. Cho vay
3. Dịch vụ thấu chi
4. Chiết khấu hóa đơn hối đoái
5. Đầu tư Quỹ
6. Chức năng đại lý
7. Chức năng khác

Khái quát chung:

- Đối với danh từ không đếm được: zero article + N
- Đối với danh từ đếm được: a (an) + singular/ zero article + Plural+ s
“Ngân hàng thương mai” – a commercial bank/ commercial banks

Some/ The functions/ roles/ tasks/ … of sth/ sbd + be + to do sth/ doing sth :
(Chức năng/ vai trò/ nhiệm vụ … của ai/ của cái gì là làm gì)

SOME MAIN FUNCTIONS OF A COMMERCIAL BANK

The main functions of commercial banks are accepting/ to accept (receive) deposits from
the public and advancing (making, giving) loans.
However, besides (apart from) these functions there are many other functions which/ that
these banks perform. All these functions can be divided into/ under the following heads:
1. Accepting deposits
2. Giving loans
3. Overdraft
4. Discounting of Bills of Exchange
A bill of exchange is a document (chứng từ) ordering someone to pay someone else a stated
sum of money at a future date.
- The actual payment will be made by means of a bill of exchange, and this will be
drawn up by the exporter or the exporter's bank after the receipt of the credit advice.
- The lender draws up a bill of exchange for a specified sum of money payable at a
given future date.

1. Nhận tiền gửi:

Sth + be + to do sth
Economic sectors: thành phần kinh tế
According to/ based on + cụm danh từ
Tính từ sở hữu/ mạo từ/ số đếm/ từ chỉ lượng + adj + N (a noun phrase)
Deposit (n + v)
Depositor (n) người gửi tiền
Save sth: để dành/ tiết kiệm
Saving (n) – savings (n) tiền tiết kiệm

For sth/ doing sth : cho việc gì

= to (in order to) do sth: để làm gì
= aiming at + doing sth: nhằm mục đích làm gì
= for the purpose of doing sth: cho mục đích làm gì

để thuận tiện cho việc thanh toán

+ for the convenience of payment
+ in order to make payments conveniently
 + aiming at making convenient payments

1. Accepting (Receiving/ Raising/ Getting) Deposits:

Chức năng quan trọng nhất của các ngân hàng thương mại là nhận tiền gửi từ công
chúng. Các thành phần kinh tế khác nhau trong xã hội, căn cứ theo nhu cầu và điều kiện
kinh tế của họ, gửi tiền tiết kiệm của họ vào các ngân hàng.

The most important function of commercial banks is to accept deposits from the public.
Various economic sectors of society, according to their needs and economic condition,
deposit their savings in the banks.

Ví dụ, những người có thu nhập cố định và thu nhập thấp (chủ ngữ) gửi tiền tiết kiệm
của họ với số lượng nhỏ dựa trên quan điểm đảm bảo an toàn và có thêm thu nhập. Mặt
khác, thương nhân và doanh nghiệp gửi tiền tiết kiệm của họ vào ngân hàng để thuận tiện
cho việc thanh toán.

Danh từ ghép:
N + N (main noun)
N (main noun) + of/ with/ without/ … + N
A sum (of money)
Ensure + sth
Point of view = viewpoint: quan điểm
For example, fixed and low-income groups of people/ groups of people with fixed and low
incomes deposit (v) their savings in small amounts/ sums from the points of view of
ensuring security and more income. On the other hand, businessmen and business firms
deposit their savings in the banks for the convenience of payment.

Vì vậy, nắm bắt được nhu cầu và lợi ích của các thành phần kinh tế khác nhau của xã hội,
các ngân hàng xây dựng các chương trình tiền gửi khác nhau. Nói chung, có ba loại tiền
gửi như sau:

Therefore, keeping/ understanding the needs and interests of various economic sectors of
society, banks formulate various deposit schemes. Generally/ In general, there are three
types of deposits as follows:

GRAMMAR POINTS
The participles (Phân từ)
1. The present participle – V-ing: Phân từ 1
 Sau các động từ: see, hear, feel, smell, listen to, notice (nhận thấy), watch (theo
dõi), catch (bắt gặp) + ai đó (tân ngữ) đang làm gì (V-ing- phân từ 1)
Ví dụ:
- I see him passing my house every day. (passing – he)
(Tôi nhìn thấy anh ấy đi ngang qua nhà tôi mỗi ngày)
 - I often listen to them playing music. Tôi thường nghe họ chơi nhạc.

 Sau các động từ: go, come, spend (time), waste (time), be busy, be difficult,
Ví dụ:
- Let’s go dancing.
Go + shopping (đi mua sắm)/ camping – cắm trại/ fishing – câu đi/ cycling – đi đạp xe/
swimming – đi bơi/ …
Spend + time + doing sth: dành bao nhiêu thời gian làm gì.
- Every day we waste much time browsing facebook.
- You should spend one hour learning English every day.

 Trước hay sau danh từ, thay cho một mệnh đề tính ngữ:
Ví dụ:
- She tried to calm down the crying child. (the child who was crying.)
- He came up to the policeman (who was) standing at the corner.
 Thay thế cho một số mệnh đề trạng ngữ:
Ví dụ:
- Coming up to the door I found it locked. (= when I came …)
- Having done my homework I went out. (= After I had done …)
- Being small he went through the hole easily. (= Because he was small …)

 Trường hợp có 2 hoặc hơn 2 động từ của cùng một chủ ngữ:
Ví dụ:
- He stood at the door looking at the tree. (He stood and looked …)

2. The past participle – V-ed: Phân từ 2

 Sau động từ see, hear … với nghĩa bị động
Ví dụ:
- I saw the boy beaten.
 Sau “have, want, get” với nghĩa bị động
Ví dụ:
- I have my hair cut every month.

Chủ động:
have sbd do sth = get sbd to do sth: thuê/ nhờ ai làm gì
= sbd + do sth: ai đó làm gì
- I had the mechanic (người thợ cơ khí) repair my car yesterday.
- I got the mechanic to repair my car yesterday.
- The mechanic repaired my car yesterday.
Bị động:
- I had/ got my car repaired (PII) yesterday.

Want sbd to do sth (muốn ai đó làm gì) = Want + sth + done (PII)

 Trước hay sau danh từ, thay cho một mệnh đề tính ngữ:
Ví dụ:
- I read the letter (which was) written in English.
- The stolen watch was never found again. (= the watch which was stolen)

 Thay thế cho một số mệnh đề trạng ngữ:

Ví dụ:
- When (she was) asked, she didn’t answer.
- If (I am) asked I’ll tell the truth.
- Though (he was) forced to speak, he didn’t say a word.

MỘT SỐ LƯU Ý VỚI MỆNH ĐỀ PHÂN TỪ

1. Một mệnh đề phân từ có thể chỉ là một phân từ.
- Everyone just stood there talking. (Mọi người chỉ đứng đó nói chuyện.)
Cũng có thể có thêm tân ngữ hoặc trạng ngữ.
- We saw a policeman chasing someone. (Chúng tôi thấy cảnh sát đang đuổi theo ai
đó.)
- Cut (PII) above the right eye, the boxer was unable to continue. (Bị thương trúng
mắt phải, võ sĩ quyền anh đó không thể tiếp tục được nữa.)
- cut – cut – cut

2. Một phân từ đôi khi có thể có chủ ngữ.

- The lights having gone out, we couldn't see a thing. (Mất điện, chúng tôi không thể
thấy gì cả.)
- Because the lights had gone out, ……
Nếu không có chủ ngữ ở đó, người ta có thể hiểu là mệnh đề phân từ có cùng chủ ngữ với
mệnh đề chính.
- The men sat round the table playing cards. (Những người đàn ông ngồi quanh bàn
đang chơi bài.)

Thường chủ ngữ được lược bỏ chính là chủ ngữ trong mệnh đề chính.
- Walking across the field, we saw a plane flying past. (Khi đang đi qua cánh đồng,
chúng tôi thấy có một máy bay bay ngang qua.)
Ta không thể dùng mệnh đề chính mà không có we.
KHÔNG DÙNG Walking across the field, a plane flew past.
Câu này có nghĩa là máy bay đi ngang qua cánh đồng, điều này vô lí.
Hãy xem câu sau.
- Sitting at a table, the band played for them.
Câu này dễ bị hiểu lầm vì nó có thể mang nghĩa là ban nhạc đang ngồi ở bàn.
Câu sau là câu đúng:
- Sitting at a table, they listened to the band. (Ngồi ở bàn, họ lắng nghe ban nhạc.)
Ở đây chủ ngữ được ngầm hiểu là giống với chủ ngữ của mệnh đề chính.
Nhưng đôi khi chủ ngữ ở 2 mệnh đề có thể khác nhau vì không dễ gây hiểu lầm.
- Knowing how little time she had, this new delay infuriated her. (Biết còn rất ít thời
gian, sự trì hoãn thêm này khiến cô ấy bực bội.)
- When adjusting the machine, the electricity supply should be disconnected. (Khi điều
chỉnh máy, nguồn điện nên được ngắt.)
Các chủ ngữ không cần giống nhau khi chúng ta dùng following, considering, regard.
- Following the lecture, we were able to ask questions. (Sau bài giảng này chúng tôi
có thể hỏi vài câu hỏi.)
- Considering the awful weather, our Open Day was a great success. (Xét đến yếu tố
thời tiết xấu thì Open Day của chúng tôi đã thành công rực rỡ.)
 - No action has been taken regarding your complaint. (Không có động thái gì liên
quan đến những phàn nàn của anh.)

CỤM DANH TỪ KẾT HỢP VỚI GIỚI TỪ

ability in excitement about optimism
advantage of example of order for
application for experience of, in price of
alternative to fall in, of payment for
advice on fear of protection from
cheque for focus on pessimism about
agreement with/ about hope of preparation for
approval of increase in, of reason for
belief in interested in rise in, of
benefit of/from invitation to request for
cause of involvement in reply to
cheque for information about reference to
comparison with insurance against responsibility for
complaint about investment in satisfaction with
cost of knowledge of similarity to
decrease in. of lack of solution to
decision about/ on matter with substitute for
demand for method of success at/in
division into need for suitability for
disappointment with objection to tax on
doubt about opinion of trouble with
difficulty with opposition to wait for
difference between worry about

HOMEWORK:
TRA TỪ VÀ LẤY CÂU VÍ DỤ CHO CÁC TỪ TRONG BẢNG TRÊN
(i) Tiền gửi vãng lai: current deposits
Người gửi tiền của các khoản tiền gửi như vậy có thể rút tiền và gửi tiền bất cứ khi nào họ
muốn.

The depositors of such deposits can withdraw and deposit money whenever/ at any time
they desire/ want

Withdraw sth (money): rút (tiền) – withdrawal (n) – sự rút tiền

Withdrawals (n) các khoản tiền được rút ra

Deposit (v)

Vì các ngân hàng phải luôn luôn giữ số tiền gửi bằng các tài khoản tiền mặt, những tài
khoản này không sinh lãi hoặc lãi suất rất thấp.

Since / Because banks have to always keep the deposited money/ deposits in cash accounts,
they/ these accounts bear either no interest or very low rate of interest.

Keep sth in/ in forms of sth: giữ cái gì dưới dạng/ bằng cái gì
Các khoản tiền gửi này được gọi là tiền gửi không kỳ hạn do các khoản tiền gửi này có thể
được người gửi tiền yêu cầu hoặc rút tiền bất kỳ lúc nào họ muốn.

These deposits are called as Demand Deposits because these can be demanded or
withdrawn by the depositors at any time/ whenever they want.

Các tài khoản tiền gửi này rất hữu ích cho các thương gia và các công ty kinh doanh lớn bởi
vì họ phải thanh toán và nhận thanh toán nhiều lần trong ngày.

Such deposit accounts/ deposits are highly/ very useful for traders/ businessmen and big
business firms because they have to make payments and accept payments many times in a
day.

(i) Current Deposits:

The depositors of such deposits can withdraw and deposit money whenever they desire.
Since banks have to always keep the deposited amount in accounts in cash, they/ these
accounts carry either no interest or very low rate of interest. These deposits are called as
Demand Deposits because these can be demanded or withdrawn by the depositors at any
time they want. Such deposit accounts are highly useful for traders and big business firms
because they have to make payments and accept payments many times in a day.

(ii) Tiền gửi cố định:

Đây là những khoản tiền gửi được gửi trong một khoảng thời gian nhất định. Thời gian này
thường không dưới một năm và do đó, đây được gọi là tiền gửi dài hạn. Các khoản tiền gửi
này không thể rút trước khi hết thời gian quy định và do đó, các khoản tiền gửi này cũng
được gọi là tiền gửi có kỳ hạn.
Các khoản tiền gửi này thường mang lại lãi suất cao hơn vì các ngân hàng có thể sử dụng
các khoản tiền gửi này trong một thời gian nhất định mà không sợ bị rút tiền.

(ii) Fixed Deposits:

These are the deposits which are deposited for a definite period of time. This period is
generally not less than one year and, therefore, these are called as long-term deposits. These
deposits cannot be withdrawn before the expiry of the stipulated time and, therefore, these
are also called as time deposits.
These deposits generally carry a higher rate of interest because banks can use these deposits
for a definite time without having the fear of being withdrawn.

(iii) Tiền gửi tiết kiệm:

Với các khoản tiển gửi này, tiền lên tới một mức nhất định có thể được gửi và rút một hoặc
hai lần trong một tuần. Lãi suất tính trên các khoản tiền gửi này rất ít. Mục tiêu chính của
loại tiền gửi này là để huy động các khoản tiết kiệm nhỏ. Những khoản tiền gửi này thường
do những người được trả lương và những người có thu nhập cố định và ít gửi tiền.

III. Translate the following texts into Vietnamese

2. Giving Loans:
The second important function of commercial banks is to advance loans to its customers.
Banks charge interest from the borrowers and this is the main source of their income.
Banks advance loans not only on the basis of the deposits of the public rather they also
advance loans on the basis of depositing the money in the accounts of borrowers. In other
words, they create loans out of deposits and deposits out of loans. This is called as credit
creation by commercial banks.
Modern banks give mostly secured loans for productive purposes. In other words, at the
time of advancing loans, they demand proper security or collateral. Generally, the value of
security or collateral is equal to the amount of loan. This is done mainly with a view to
recover the loan money by selling the security in the event of non-refund of the loan.
At limes, banks give loan on the basis of personal security also. Therefore, such loans are
called as unsecured loan. Banks generally give following types of loans and advances:
………………………………………………………………………………………………
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(i) Cash Credit:
In this type of credit scheme, banks advance loans to its customers on the basis of bonds,
inventories and other approved securities. Under this scheme, banks enter into an agreement
with its customers to which money can be withdrawn many times during a year. Under this
set up banks open accounts of their customers and deposit the loan money. With this type of
loan, credit is created.
………………………………………………………………………………………………
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(iii) Demand loans:
These are such loans that can be recalled on demand by the banks. The entire loan amount
is paid in lump sum by crediting it to the loan account of the borrower, and thus entire loan
becomes chargeable to interest with immediate effect.
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
(iv) Short-term loan:
These loans may be given as personal loans, loans to finance working capital or as priority
sector advances. These are made against some security and entire loan amount is transferred
to the loan account of the borrower.
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………

3. Over-Draft:
Banks advance loans to its customers up to a certain amount through over-drafts, if there are
no deposits in the current account. For this banks demand a security from the customers and
charge very high rate of interest.
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
4. Discounting of Bills of Exchange:
This is the most prevalent and important method of advancing loans to the traders for short-
term purposes. Under this system, banks advance loans to the traders and business firms by
discounting their bills. In this way, businessmen get loans on the basis of their bills of
exchange before the time of their maturity.
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………

5. Investment of Funds:
The banks invest their surplus funds in three types of securities—Government securities,
other approved securities and other securities. Government securities include both, central
and state governments, such as treasury bills, national savings certificate etc.
Other securities include securities of state associated bodies like electricity boards, housing
boards, debentures of Land Development Banks units of UTI, shares of Regional Rural
banks etc.
………………………………………………………………………………………………
………………………………………………………………………………………………
6. Agency Functions:
Banks function in the form of agents and representatives of their customers. Customers give
their consent for performing such functions. The important functions of these types are as
follows:
(i) Banks collect cheques, drafts, bills of exchange and dividends of the shares for their
customers.
(ii) Banks make payment for their clients and at times accept the bills of exchange: of their
customers for which payment is made at the fixed time.
(iii) Banks pay insurance premium of their customers. Besides this, they also deposit loan
installments, income-tax, interest etc. as per directions.
(iv) Banks purchase and sell securities, shares and debentures on behalf of their customers.
(v) Banks arrange to send money from one place to another for the convenience of their
customers.
………………………………………………………………………………………………
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………………………………………………………………………………………………

7. Miscellaneous Functions:
Besides the functions mentioned above, banks perform many other functions of general
utility which are as follows:
(i) Banks make arrangement of lockers for the safe custody of valuable assets of their
customers such as gold, silver, legal documents etc.
(ii) Banks give reference for their customers.
(iii) Banks collect necessary and useful statistics relating to trade and industry.
(iv) For facilitating foreign trade, banks undertake to sell and purchase foreign exchange.
(v) Banks advise their clients relating to investment decisions as specialist
(vi) Bank does the under-writing of shares and debentures also.
(vii) Banks issue letters of credit.
(viii) During natural calamities, banks are highly useful in mobilizing funds and donations.
(ix) Banks provide loans for consumer durables like Car, Air-conditioner, and Fridge etc.

………………………………………………………………………………………………
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UNIT
UNIT 10 7 TAXATION
 PREVIEW
Match the terms in column A with their definitions in column B
1. Income tax A. Multinational companies often set up their subsidiaries
2. Progressive tax in low-tax countries such as Liechtenstein, Monaco, the
3. Indirect taxes Cayman Islands, and the Bahamas
4. VAT (Value added tax) B. Property taxes, sales taxes, customs duties on imports,
5. Capital gain tax and excise duties on tobacco, alcoholic drinks, petrol, etc.
6. Capital transfer tax C. Bringing forward capital expenditure (on new factories,
7. Tax avoidance machines, and so on) so that at the end of the year all the
8. Making a tax loss profits have been used up
9. Tax evasion D. The tax on wages and salaries (and business profits in
10. Tax havens the US)
E. Making false or no declarations to tax authorities
F. A tax liable to profits made from the sale of assets
G. A tax that is levied at a higher rate on higher incomes
H. Reducing the amount of tax you pay to a legal
minimum
I. A tax collected at each stage of production, excluding
the already-taxed costs from previous stages
J. A tax levied on gifts and inheritances over a certain
value

A – 10 B–3 C–8 D–1 E–9 F–5 G–2 H–7 I–4 J-6

Impose/ levy + taxes + on sth = tax sth
- Personal (individual) income tax is the tax (which is) imposed on individual
incomes.
- Corporate income tax is the tax imposed/ levied on the company’s profits/
incomes.
A levy (n) is a sum of money that you have to pay, for example as a tax to the
government.
- ...an annual motorway levy on all drivers. [+ on]
Synonyms: tax, fee, toll, tariff
If a government or organization levies (v) a tax or other sum of money, it demands it
from people or organizations.
 - They levied religious taxes on Christian commercial transactions. [VERB
noun + on]
- Taxes should not be levied without the authority of Parliament. [VERB noun]
A toll is a small sum of money that you have to pay in order to use a particular bridge
or road. – phí cầu đường
A tariff (n) is a tax that a government collects on goods coming into a country
(imports) – thuế hải quan/ thuế nhập khẩu
- America wants to eliminate tariffs on items such as electronics. [+ on]
A tariff (n) is the rate at which you are charged for public services such as gas and
electricity, or for accommodation and services in a hotel. – phí dịch vụ công
[British, formal]
- The daily tariff includes accommodation and unlimited use of the pool and
gymnasium.
Be liable to sth
If you are liable for something such as a debt, you are legally responsible for it.
- The airline's insurer is liable for damages to the victims' families. [+ for]
- Capital gain tax is the tax liable to profits made from the sale of assets
Depreciate (v): hao mòn
- Fixed assets depreciate over time. They lose their value over time because they
are used, or they are out-of-date, or they are affected by environmental
factors.
If something such as a currency depreciates or if something depreciates it, it loses
some of its original value.
- Inflation is rising rapidly; the yuan is depreciating. [VERB]
- The demand for foreign currency depreciates the real value of local
currencies. [VERB noun]
- During those five years, the pound depreciated by a quarter. [VERB + by]
The yuan is the unit of money that is used in the People's Republic of China.
- For most events, tickets cost one, two or three yuan.
- The yuan is also used to refer to the Chinese currency system.
- The yuan recovered a little; it now hovers around 8.2 to the dollar.
Discounts for the depreciation of fixed assets = depreciations
Depreciation (n)
a. the reduction in value of a fixed asset due to use, obsolescence, etc
b. the amount deducted from gross profit to allow for such reduction in value

Basically there are 3 methods of computing depreciations:

+ linear method = average weighted method
+ bringing forward capital expenditure: tính hao mòn theo phương pháp giảm
dần
Capital = fixed assets
Defining taxable incomes (profits): xác định thu nhập chịu thuế
Profits before tax (taxable incomes) = Net sales – Total costs (raw materials used +
salaries and wages + administrative costs + operation costs + depreciations +
interests)
Profits before tax X tax rates = tax bills
Declare (v) khai báo
If you declare something, you state officially and formally that it exists or is the case.
- The government is ready to declare a permanent ceasefire. [VERB noun]
Declaration (n) – make declarations
A declaration is an official announcement or statement.
- They will sign the declaration tomorrow.
- The opening speeches sounded more like declarations of war than offerings of
peace. [+ of]
- ...the issues arising from their declaration of independence.
Tax offices = tax authorities: cơ quan thuế
An authority is an official organization or government department that has the power
to make decisions.
- ...the Health Education Authority.
- Any alterations had to meet the approval of the local planning authority.
Capital gain = income gained from selling the company’s assets
Capital gain (n) profit resulting from the sale of capital investments, as stocks, real
estate, etc.
A capital gain is the amount by which the selling price of a financial asset exceeds its
cost.
Capital transfer tax
If you inherit money or property, you receive it from someone who has died.
 - He has no son to inherit his land. [VERB noun]
- ...paintings that he inherited from his father. [VERB noun + from]
- ...people with inherited wealth.
An inheritance tax is a tax which has to be paid on the money and property of
someone who has died.
Capital transfer tax (in Britain) a tax payable from 1974 to 1986 at progressive rates
on the cumulative total of gifts of money or property made during the donor's
lifetime or after his or her death. It was replaced by inheritance tax
MAIN IDEAS OF UNIT 7
I> Different types of taxes (tên các loại thuế và định nghĩa)
+ based on things imposed taxes
(Terms + definitions)
+ based on tax rates: progressive taxes; regressive taxes
+ based on ways of paying taxes: direct taxes; indirect taxes
II> Functions of taxation
III> Tax evasion
IV> Tax avoidance

READING 1
TAXATION
The primary function of taxation is, of course, to raise revenue to finance
government expenditure, but taxes can also have other purposes. Income taxes in most
countries are progressive, and are one of the ways in which governments can redistribute
wealth.
- Payroll taxes => (generate) trust funds – quỹ bảo hiểm xã hội – which are spent on
social security and medicare.
- Income taxes => (generate) federal funds (state budget) which are spent on
government projects or programs such as the construction of infrastructure that
benefit all the society.

Governments can also encourage capital (fixed assets) investment by permitting various
methods of accelerated depreciation accounting that allow companies to deduct more of
the cost of investments from their (taxable) profits, and consequently reduce their tax bills.

Indirect excise duties, for example, can be designed to dissuade people from smoking,
drinking alcohol, and so on. Varying justifications and explanations for taxes have been
offered throughout history. Early taxes were used to support ruling classes, raise armies and
build defenses. Later justifications have been offered across utilitarian, economic or moral
considerations. Proponents of progressive levels of taxation on high-income earners argue
that taxes encourage a more equitable society. Higher taxes on specific products and
services, such as tobacco or gasoline, have been justified as a deterrent on consumption.
Advocates of public goods theory argue taxes may be necessary in instances in which the
private provision of public goods is considered sub optimal, such as with public
transportation or national defense.

methods of accelerated depreciation accounting: phương pháp tính hao mòn lũy kế
tax bills = tax liabilities
- The function of excise taxes is to dissuade people from consuming some special
(unnecessary) goods and services such as wine, beer, cosmetics, restaurants, hotels,
etc.

What are different common types of taxation? As mentioned above, taxation applies
to all different types of levies. These can include (but are not limited to): 
 Income tax: Governments impose income taxes on financial income generated by all
entities within their jurisdiction, including individuals and businesses.
 Corporate tax: This type of tax is imposed on the profit of a business.
 Capital gains: A tax on capital gains is imposed on any capital gains or profits made
by people or businesses from the sale of certain assets including stocks, bonds, or
real estate. 
 Property tax: A property tax is assessed by a local government and paid for by the
owner of a property. This tax is calculated based on the property and land values. 
 Inheritance: A type of tax levied on individuals who inherit the estate of a deceased
person. 
 Sales tax: A consumption tax imposed by a government on the sale of goods and
services. This can take the form of a value-added tax (VAT), a goods and services
tax (GST), a state or provincial sales tax or an excise tax.

The higher the tax rates, the more people are tempted to cheat – gian lận, but there is a
substantial 'black' or 'underground' economy nearly everywhere. Tax evasion applies to both
the illegal nonpayment as well as the illegal underpayment of taxes. Unlawful attempt to
minimize tax liability through fraudulent techniques to circumvent or frustrate tax laws,
such as deliberate under-statement of taxable income or willful non-payment of due taxes.
Whereas tax evasion is an offense (punishable by both civil and criminal penalties), tax
avoidance is not. In Italy, for example, self-employed people - whose income is more
difficult to control than that of company employees - account for more than half of national
income. Lots of people also have undeclared, part-time evening jobs (some people call this
'moonlighting') with small and medium-sized family firms, on which no one pays any tax or
national insurance.

Self-employed people = freelancers: người làm nghề tự do: such as photographers/ tailors/
…
Temp sbd to do sth: xui khiến/ xúi giục ai đó làm gì

Tax avoidance is the use of legal methods to modify an individual's financial

situation to lower the amount of income tax owed. This is generally accomplished by
claiming the permissible deductions and credits. This practice differs from tax evasion,
which uses illegal methods, such as underreporting income to avoid paying taxes. Most
taxpayers use some form of tax avoidance. Even though it may seem negative, it really isn't.
In fact, tax avoidance is a legal way for people or other entities to minimize their tax
liability. These can be in the form of deductions or credits used to their advantage to lower
their tax bills.
 
To reduce income tax liability, some employers give highly-paid employees lots of 'perks'
(short for perquisites) instead of taxable money, such as company cars, free health
insurance, and subsidized lunches. Legal ways of avoiding tax, such as these, are known as
loopholes in tax laws. Life insurance policies, pension plans and other investments by
which individuals can postpone the payment of tax, are known as tax shelters. Donations to
charities that can be subtracted from the income on which tax is calculated are described as
tax-deductible. Individuals who contribute to employer-sponsored retirement plans with
pre-tax funds are engaging in tax avoidance because the amount of taxes paid on the funds
when they are withdrawn in retirement is usually less than the amount the individual would
owe. Furthermore, retirement plans allow taxpayers to defer paying taxes until a much later
date, which allows their savings to grow at a faster rate.
Companies have a variety of ways of avoiding tax on profits. They can bring forward
capital expenditure (on new factories, machines, and so on) so that at the end of the year all
the profits have been used up; this is known as making a tax loss. Multinational companies
often set up their subsidiaries in countries such as Liechtenstein, Monaco, the Cayman
Islands, and the Bahamas, where taxes are low; such countries are known as tax havens.
Criminal organizations – tổ chức tội phạm - , meanwhile, tend to pass money
through a series of companies in very complicated transactions in order to disguise its origin
from tax inspectors - and the police; this is known as laundering money.

I> According to the text, are the following statements are TRUE or FALSE? Give the
evidences.
1. The same amount of money can only be taxed once.
2. One of the ways for governments to redistribute wealth in society is to allow companies
to deduct more of the cost of investments from their profits
3. Progressive taxes may encourage investments or persuade people to work extra hours.
4. To reduce the amount of tax, some bosses give highly-paid employees subsidies or
benefits.
5. Property tax is a type of tax levied on individuals who inherit the estate of a deceased
person. 
6. “Tax shelters” are a common form of tax evasion.
7. If you pay a lot of your income into a pension fund or a life insurance policy you never
have to pay tax on it.
8. A company that makes an unusually large profit during a tax year might quickly decide
to spend it, for example, on a new factory or equipment.
1. T 2. F 3. F 4. T 5. F 6. F 7. F 8. T

II> Find words in the text that mean the following

1. reducing the value of a fixed asset, by charging it against profits
2. something which discourages an action
3. an adjective describing a tax that is proportionally higher for people with higher money
4. A person who advocates a theory or a proposal
5. working for yourself, being your own boss
6. the process of creating appearance the large money obtained from criminal activity
comes from a legitimate source.
7. non-financial benefits or advantages of a job
8. a way to delay the payment of tax to a later time
9. an adjective describing expenditures that be taken away from taxable income or profits
10. a country offering very low tax rates to foreign businesses
1. accelerated depreciation 2. Disincentive 3. progressive
4. proponents5. self-employed 6. money laundering
7. perks 8. tax shelter 9. Deductive s10. a tax haven

TOPIC QUESTIONS
1. What are different functions of taxation?
- The primary function of taxation is to raise revenue for the government expenditure.
- Different types of taxes have different functions. For example:
+ Function of income taxes is to redistribute wealth (income)
+ Function of corporate income tax is to encourage investment in fixed assets by
permitting various methods of computing depreciations of fixed assets.
 + Function of excise taxes is to dissuade people from consuming some special and
unnecessary goods and services such as wine, beer, cosmetics, hotels, restaurants, …
+ Function of payroll taxes is to ensure social security
+ Functions of customs duties (tariff) are to restrict the consumption of imports; to
protect domestic producers.
2. How do companies and individuals evade taxes?
Evade (v) - evasion
3. How do individuals avoid taxes?
4. How do companies avoid taxes?

HOW TO WRITE A TOPIC (PARAGRAPH)

Before writing, an outline should be made
OUTLINE FOR Q2: How do companies and individuals evade taxes?
- Introductory sentence: definition of tax evasion
- Topic sentence: some ways for both individuals and firms to evade taxes
- Body of the paragraph:
+ Idea 1: individuals
Supporting sentence: ways for individuals + specific explanations to these ways/
examples for illustration.
 Sub-main idea 1 - self-employed people/ freelancers
 Sub-main idea 2 – people with part-time jobs
+ Idea 2: Firms
+ Supporting sentence: ways for firms + specific explanations to these ways/
examples for illustration.

Tax evasion means making false or no declaration to the tax authorities. There are some
ways for both individuals and firms to evade taxes. Firstly/ First of all, First, freelancers
whose incomes are much more difficult to control than that of companies’ employees often
undclare their incomes to the tax offices, thus they evade paying taxes on personal incomes
as well as paying payroll taxes. Besides, people with part-time jobs also don’t pay any
income taxes and payroll taxes on their incomes earned from small and medium-sized
companies. Not only individuals but also firms are tempted/ induced to treat. Tax evasion
by firms covers evasion of income tax, VAT, customs duty and excise tax. For example (lấy
ví dụ các trường hợp các công ty bị phát hiện trốn thuế).

Topic sentence:
- Individuals and firms have been evading taxes in some different ways.
 - People have been witnessing many cases of tax evations by both individuals and
firms almost everywhere.
- Tax authorities in most countries in the world have discovered many cases of tax
evations by both individuals and firms.

Make fraudulence

VOCABULARY EXERCISES
Fill in the gaps in the text using words/ phrases in the box.
income tax avoiding investments salary calculated
varies liability earnings methods profit
In the 21st Century, the number of different taxes that we are obliged to pay has
reached record levels which means as a society we are even less willing to pay them. As
well as income tax we are exposed to many other taxes including corporation tax, capital
gain tax, consumption tax and property taxes. All of this can be too much to handle for an
SME so accountants are often used to try to minimize the tax (1) …………….. of a
company.
Certain taxes are unavoidable though. As a registered business entity you will have
to pay a consumption tax, which would either be sales tax in the US or value added tax in
the rest of the world. Sales tax is levied against the consumer, which means that the
company has no liability other than the act of collecting the tax which is (2) …………….
on the sale price of a product. This tax is held by the company until a determined time when
it is paid to the appropriate governmental department. As there is no tax due from the
production of the goods, sales tax does not affect the (3) ………….. of an organization,
unlike VAT which is levied on both the consumer and the producer.
Capital gains tax, which is basically a tax on the sale of a non-inventory asset that
has increased in value since purchase. The difference in value is then treated as a taxable
source of income and thus has tax levied against it. The rate of taxation (4) …………
depending on the income tax bracket of the individual or corporation selling the asset and
whether it is a short or long-term gain. Short term gains are anything up to one year. As any
accountant dealing with capital gains tax knows, it is advisable to wait for over 12 months
after the point of purchase before selling the asset so that long-term capital gains tax is due
at a lower rate. Tax due on both short and long-term gains can be deferred by a variety of
(5) …………… .
Corporation tax is the taxation method for taxing the income of a business entity
classified as a corporation; the tax rate is dependent on the taxable (6) ……….. of that
corporation. As with income tax, the tax due may be reduced with the aid of tax credits.
 Tax credits are offered to businesses for a variety of reasons with the most common
of these being, encouragement to invest in alternative energies, encouragement to employ
certain individuals, disaster relief or on earnings outside the US. These credits are then
offset against the tax liability reducing the tax due.
Even individuals are confronted by an often confusing array of taxes. The most
common of these taxes is (7) …………. , which taxes our earnings. People are often
unaware how much income tax they pay as it is dealt with by the employer who, while
calculating the wages for an employee also calculates the income tax due and deducts this
from the pay packet.
The PAYE system in England is the system of paying wages and appropriate taxes
and insurances on the cost of employees. This system allows employers to withhold any
deductions due on an employee’s (8) ………….. , while calculating the correct payments
for statutory sick and maternity pay.
Tax affects everyone from an employee to the CEO of the largest corporation but if
you are in the position where you employee a good accountant, you can actually lower your
liability by exploiting loopholes in the anti-avoidance registration.
A common method of (9) ………… income tax is for an employee in the higher tax
bracket to channel their wages through a shell company, thus changing the type of taxation
from income to corporation. Then drawing the maximum salary while remaining on the
lower tax bracket, after a certain number of years the shell company is then liquidated.
Accountants can also advise on the best type of (10) …………… so as to receive tax
credits from the government. There is an old expression: “Only two things in life are
certain, death and taxes.” Well, we can’t do anything about the former, but a good
accountant can help with the latter.

READING 2
Read the following text and choose the best answer A, B, C or D
A tax is an amount of money that governments require to be paid to support the
government. Taxes have been around for a long time. In fact, there is a very old saying that
in this world nothing is certain but death and taxes. Many centuries ago people were already
paying taxes. Six-thousand-year-old clay tablets were found, in what is now modern day
Iraq, containing the earliest known tax records.
The early Greeks paid taxes like those that are still enforced today, taxes on what people
owned and sold. Roman taxes are mentioned in the Bible, and the fall of the Roman Empire
is said to be in part due to the huge burden of taxes Romans imposed on the people. In
ancient times, the Chinese civilization had a form of taxation that required that one-tenth of
each person's land and what was earned from it belonged to the government.
Where there were taxes there always seemed to be the question of whether the taxes
were fair. During the Middle Ages, there were many taxes. Every adult had to pay a poll
tax, a tax just for being there, and existing as a person. There were also property taxes,
even if one did not own property, and part of every person's work or what they grew must
go to the Church.
Nobles revolted against King John in 1215 because he asked for payment of new taxes,
made current taxes greater, and tried to tax people to pay for a war effort. King John's
leadership was not trusted by the people who felt they had no obligation to pay to support
this war.
During the Colonial Period settlers went to new lands and these lands became new
sources of taxes. Taxes were especially needed to pay for wars. In 1779, the first income
tax, a tax on employment income, was used by Great Britain to pay for wars against
Napoleon.
The American Revolution was in part caused by what the colonists in America
considered unfair taxation. The colonists had to pay taxes to England but were not
represented in the English government. Their battle cry was, 'No taxation without
representation.'
When the United States was first established there were few taxes. There was not much
need as times were peaceful and there was little need to pay for an army. The government
was also small and had no great need for extra money.
However, as the country grew there was a greater need for taxes. Citizens who earned a
certain amount of money were taxed to pay for the Civil War. This was the first federal
income tax. It lasted until the 1870's when it was withdrawn, but new federal taxes, taxes
imposed by the national government, went into effect again in 1894.
Today some of our taxes go for protecting our country, helping those in need, keeping us
healthy, paying off debts our country owes, and taking care of those who have fought in our
wars. Without taxes, governments could not exist. But as history shows us, it is always
important for each one of us to make sure that taxes are just, fair and necessary.
1) Which of the following defines taxes?
A: Extra costs of things
B: Part of what people owe
C: Money people don't want to pay
D: Money that goes to support the government
2) How long have taxes been in existence?
A: 200 years
B: Six thousand years
C: 500 years
D: Since the Middle Ages
3) Which of the following tells why the nobles revolted against King John?
A: He took their land
B: He made them pay taxes they hated
 C: He didn't give them enough freedom
D: He wouldn't fight in any wars
4) Which of the following was the battle cry of the American Revolution?
A: Down with Britain
B: No tea for me
C: No taxation without representation
D: One if by land, two if by sea
5) Which of the following was the first war paid for by taxes in the United States?
A: The Spanish-American War
B: The Civil War
C: The Revolutionary War
D: The French and Indian War
6) Which of the following years was the first income tax imposed by Great Britain?
A: 1215
B: 1870
C: 1750
D: 1776

READING 1: TAXATION
I> According to the text, are the following statements are TRUE or FALSE? Give the
evidences.
1. T 2. F 3. F 4. T 5. F 6. F 7. F 8. T
II> Find words in the text that mean the following
1. accelerated depreciation 2. Disincentive 3. progressive
4. proponents 5. self-employed 6. money laundering
7. perks 8. tax shelter 9. deductive
10. a tax haven

READING 2
Read the following text and choose the best answer A, B, C or D
1 D 2 B 3B 4C 5B 6D

WRITING
I. Write about the following topics:
1> What are different functions of taxation?
2> What is tax evasion? How do individuals and firms evade taxes?
3> What is tax avoidance? How do individuals and firms avoid paying taxes?
II. Translate the following text into Vietnamese
Today we will examine the different types of tax which are in effect today. There are
many kinds of tax, each with a different mechanism of when and how the tax is due. In
business, it is vital to understand when and how each of these taxes are calculated.
Due (adj): expected to happen, arrive, etc. at a particular time:
- The next meeting is due to be held in three months' time. – Cuộc họp lần tới dự kiến
sẽ được tổ chức sau 3 tháng nữa.
- Their first baby is due in January.
- The present chairman is due to retire next month.
- They backed out of the deal the day before they were due to sign the contract.

Let's start with sales tax. In the US, this tax is often used as a method for states to
generate revenue. Purchases at the retail level (not wholesale) are subject to sales tax, which
is a percentage of the sales price. Sales tax is not standardized, as individual states can set
the applicable rates - these rates generally vary depending on the product. Sales tax is an
indirect tax, as the taxes are collected by the merchant who then, at the appropriate time
pays the tax to the appropriate organ. Sales tax, is also referred to as consumption tax.

Sales tax (n) in some countries and in some US states, a tax that you pay when you buy
goods or services, calculated as a percentage of their price: - thuế doanh thu
- a local/national/state sales tax
- The regional plan calls for a 2% sales tax on gasoline.
- In the UK VAT was introduced in 1973, replacing purchase tax.
Consuption tax (n) a tax that is added to the price of goods and services bought by the
general public:
- Under a consumption tax, those who spend more would be taxed more.

Moving on to capital gains tax. Capital gains tax, is the tax which is levied against any
profits from the sale of an asset which was sold for more than it was bought. This could be,
for example, profit made when selling your house, a car, or any stocks. This is a per
annum tax which means that loss from a sale later in the year can be offset against the profit
from an earlier sale. The great thing about this tax is it only taxes people with enough
excess income to actually invest. In other words, it's a tax the poor don't have to think
about.

Capital gain tax – thuế tăng vốn

Offset (v) to balance one effect against an opposing effect, so that there is no great
difference as a result: bù lại
 - The price of petrol products was offset by a decline in motor vehicle prices.
offset sth against sth – bù lại cái gì bằng gì
- Offset any losses against your overall income.
- The extra cost of travelling to work is offset by the lower price of houses here.
- (UK) He keeps his petrol receipts because petrol is one of the expenses that he can
offset against tax (= can show to the government as being a business cost, and so not
pay tax).
Offset – offset – offset

Thuế môn bài tiếng Anh là “Business-license tax” có nghĩa là thuế cấp phép kinh doanh,
thuế môn bài phải đóng khi đi vào kinh doanh, hiện nay theo luật Việt Nam đã sử dụng
thuật ngữ “lệ phí môn bài”, để phù hợp về mặt ngữ nghĩa của từ hiện tại thì cụm từ tiếng
anh tương ứng là “licensing fee”.
Thuật ngữ “licensing fee” có thể được sử dụng trong một số bối cảnh, trong đó nó được sử
dụng phổ biến nhất để mô tả một số tiền được trả cho một thực thể cho một quyền hoặc khả
năng nhất định.
“Licensing fee” cũng có thể là một khoản tiền được trả bởi một cá nhân hoặc doanh nghiệp
cho cơ quan chính phủ vì đặc quyền thực hiện một dịch vụ nhất định hoặc tham gia vào một
ngành kinh doanh cụ thể.

Like most taxes, property tax is self-explanatory. It's a tax based on the value of an asset.
The most common occurrence of this is tax on your home, but it could also include your car
and anything else the government wishes to tax. Interestingly, the focus of property tax is
on private assets in public view, such as your home or car. But if you lend a work of art to a
museum it can now be subject to the property tax, as this piece of art is now in the public
eye. Similar to the capital gains tax, property tax generally generates revenue from people
who earn enough to have assets worth taxing.

Income tax, needs no introduction. Everyone of us is aware of this tax and aware of how
much it costs. It taxes the financial income of individuals and companies alike. Most
countries operate a bracketed income tax system, so a person making $25,000 a year will
pay a lower percentage of their income than someone making $80,000 a year. People are
taxed on gross income, while companies generally are taxed on net income.

Bracket (n) a group with fixed upper and lower limits: khung, định mức
- Her pay rise brought her into a new tax bracket.

Value Added Tax is another consumption tax, similar to sales tax in the US but with a key
difference. It's more complicated as it's applicable at every point in the supply chain.
Generally, each step in the chain of a product being converted from raw materials to
something worth buying, has value added to it. So in the gas industry you might have 3
steps. The first group pumps oil and sells it to the refiner - tax. The refiner converts the oil
to gasoline and sells it to gas station - tax. You pump the gas and pay the station - tax. This
system is also considered the most fair, since everyone gets taxed based on the contribution
they make to the economy.

You will probably be familiar with most of the taxes talked about today, but there are some
other terms in taxation that you have probably not heard about or don't understand either
what they are or why they exist.

Regressive tax is a tax that is less strenuous on the rich than it is on the poor. Sales taxes
like that used in the US and the VAT in Europe are regressive taxes as everyone will have
to pay an amount of this tax, but it will be easier for a richer person to do so. Income tax is
the opposite in that it is a progressive tax; the more you earn, the larger your tax burden is.

Strenuous (adj) - needing or using a lot of physical or mental effort or energy: vất vả
- He rarely does anything more strenuous than changing the channels on the
television.
- His doctor advised him not to do any strenuous exercise. – bài tập tiêu hao nhiều
năng lượng

II. Translate the following texts into English

Thuế được định nghĩa là các khoản thanh toán bắt buộc của những người đóng góp
vào ngân sách và cho các quỹ ngoài ngân sách theo số tiền được pháp luật xác định và trong
thời hạn quy định.

Taxes are defined as the compulsory payments made to the budget by contributors
and to off-budget funds in amounts determined by law and for a specified period of time.

Các chức năng của thuế biểu hiện mục đích xã hội về phân phối dựa trên giá trị và
phân phối lại thu nhập. Mỗi chức năng được thực hiện bởi các công cụ thuế là một biểu
hiện của một tính năng nội bộ hoặc một chỉ số kinh tế.
 Tax functions represent a social purpose of value-based distribution and income
redistribution. Each function performed by tax instruments is an expression of an internal
feature or an economic indicator.

Căn cứ theo các hoạt động của chính phủ, thuế có thể có một số chức năng như sau:
a. Tăng nguồn thu cho chính phủ
Chính phủ có thể tăng nguồn thu từ việc cung cấp hàng hóa và dịch vụ. Những mặt hàng
này thuộc hai loại - hàng hóa công và hàng hóa công ích. Hàng hóa công, chẳng hạn như
quốc phòng và an ninh xã hội được tiêu dùng chung và mọi công dân đều được hưởng nếu
anh ta muốn. Những hàng hóa này phải do chính phủ cung cấp.

Based on government activities, taxes can have a number of functions as follows:

a. Increasing revenue for the government
The government can increase revenues from the provision of goods and services. These
items fall into two categories - public goods and public services. Public goods, such as
national defense and social security, are shared and enjoyed by each citizen if he wishes.
These goods must be supplied by the government.

Các hàng hóa công ích, như giáo dục và chăm sóc y tế, có thể do tổ chức tư nhân cung cấp
nhưng thường không đạt mức thỏa mãn nhu cầu của xã hội và do đó các chính phủ có thể
trợ giá sản xuất một số hàng hóa nhất định.

Public service (n) a service provided by the government, such as hospitals, schools, or the
police:
Private institutions: tổ chức tư nhân
Fail to do sth: không đạt điều gì
Meet the needs of society: thỏa mãn nhu cầu xã hội
Subsidize (v) - to pay part of the cost of something: subsidize sth
- £50 would help to subsidize the training of an unemployed teenager.
- The refugees live in subsidized housing provided by the authorities.

Public services, such as education and health care, can be provided by private institutions
but often fail to meet the needs of society and thus governments may subsidize production
of some certain goods.

Điều này có thể được thực hiện vì nhiều lý do nhưng chủ yếu là do thị trường có thể không
phản ánh chi phí thực tế và lợi ích của việc sản xuất hàng hóa. Ví dụ, công chúng có thể
được trợ cấp vì thị trường không tính đến tất cả các chi phí và lợi ích của hệ thống giao
thông công cộng.
Real costs : chi phí thực tế
Take sth into account (v) to consider or remember something when judging a situation: tính
đến cái gì/ điều gì; xem xét đến
- I hope my teacher will take into account the fact that I was ill just before the exams
when she marks my paper.
- A good architect takes into account the building's surroundings.
- The UK's tax system takes no account of children.
- I think you have to take into account that he's a good deal younger than the rest of
us.

This can be done for a variety of reasons, but mainly because the market may not reflect the
real costs and benefits of producing the good. For example, the public may be subsidized
because the market does not take into account all the costs and benefits of the public
transport system.

b. Ổn định kinh tế
Thuế được áp đặt để duy trì sự ổn định kinh tế trong nước. Trong thời kỳ lạm phát, chính
phủ áp đặt nhiều thuế hơn để ngăn cản các chi phí không cần thiết của các cá nhân. Trong
thời kỳ giảm phát, thuế được giảm để cho phép các cá nhân chi nhiều tiền hơn. Bằng cách
này, việc tăng hoặc giảm giúp kiểm soát những biến động lớn về giá cả và duy trì sự ổn
định kinh tế.

Inflation (n)
Inflationary (adj)
Deflation (n) giảm phát

b. Stablizing the economy

Taxes are imposed to maintain economic stability in the country. During the inflationary
period, the government imposes more taxes to prevent unnecessary expenses of individuals.
During deflation, taxes are reduced to allow individuals to spend more money. In this way,
the increase or decrease helps to control large fluctuations in prices and maintain economic
stability.

c. Phân phối lại thu nhập hợp lý

Một chức năng chính của thuế là mang lại phân phối lại thu nhập. Thứ nhất, nguồn thu từ
thuế mang lại cho các nhóm người có thu nhập thấp hơn những lợi ích bằng tiền và hiện
vật. Thứ hai, các nhóm người có thu nhập cao hơn, thông qua một hệ thống thuế lũy tiến,
nộp một phần thu nhập cao hơn cho thuế so với các thành viên kém may mắn của xã hội.

c. Reasonable income redistribution

A primary function of taxation is to provide income redistribution. First, tax revenues

provide lower income groups with monetary and in-kind benefits. Second, higher income
groups, through a progressive tax system, pay a higher share of their income to taxes than
the less fortunate members of society.

d. Trả lãi cho nợ quốc gia

Chính phủ đánh thuế để trả lãi cho nợ quốc gia.

e. Phân bổ nguồn lực tối ưu

Thuế cũng được áp dụng để phân bổ nguồn lực của quốc gia để sử dụng tối ưu các tài
nguyên này. Số tiền thu được của Chính phủ từ thuế được chi cho các dự án mang lại hiệu
quả cao hơn. Điều đó có nghĩa là các nguồn lực được phân bổ để đạt được sản lượng tối đa
có thể trong các trường hợp nhất định.

e. Optimal resource allocation

Taxes are also applied to the allocation of national resources for the optimal use of these
resources. Government revenue from taxes is spent on more efficient projects. That means
resources are allocated to achieve the maximum possible output under certain
circumstances.

f. Chính sách bảo hộ

Thuế cũng được áp dụng để bảo hộ những hàng hóa được sản xuất trong nước. Do đó chính
phủ áp đặt thuế nặng vào việc nhập khẩu các mặt hàng đó từ các nước khác. Các loại thuế
này xui khiến các cá nhân mua sản phẩm địa phương.

f. Protection policy
Taxes are also imposed to protect domestically produced goods. Hence the government
imposes heavy taxes on the import of those items from other countries. These taxes induce
individuals to buy local produce.
g. Phúc lợi xã hội
Chính phủ áp đặt thuế đối với việc sản xuất những mặt hàng có hại cho sức khỏe con người,
ví dụ: thuế tiêu thụ đặc biệt đối với rượu vang, thuốc lá, v.v.
g. Social welfare
The government imposes taxes on the production of goods harmful to human health, for
example, excise tax on wine, tobacco, etc.

TAX EVASION CONSEQUENCES, CASES & CONVICTIONS

Posted by Vivek Dodd on 10 Jul 2020
In many developed countries, tax evasion is a crime, punishable by financial penalties and
even prison time - showing just how seriously it is taken.
What are tax evasion and tax avoidance?
Tax evasion is when a person or company escapes paying taxes by concealing the true state
of their affairs to tax authorities. It covers evasion of income tax or VAT, excise duty and
custom duty frauds. Tax avoidance, on the other hand, is where a person or company
legally exploits the tax system to reduce tax liabilities, such as establishing an offshore
company.
Conceal (v) to prevent something from being seen or known about; to hide something: che
giấu
- He made no attempt to conceal his satisfaction.
Conceal (v) to not tell somebody about something that they have the right to know about:
- Do not conceal health problems from a prospective insurer.
Disguise (v) to give a new appearance to a person or thing, especially in order to hide its
true form:
- He disguised himself by wearing a false beard.
- We tried to disguise the fact that it was just a school hall by putting up coloured
lights and balloons.
Affairs = business activities
Fraud (n) the crime of getting money by deceiving people: gian lận
- Convicted of tax fraud, he was sentenced to two years in prison.
serious/massive fraud
 - We only investigate when there are sufficient grounds for believing serious fraud has
taken place.
- The US Sentencing Commission has raised penalties for corporate fraud twice.
credit card/tax fraud
- He was charged for federal tax fraud.
Fraudulence (n) the act of deceiving someone, for example, to get money:
- Identity theft wasn't even recognized as a form of fraudulence until recently.
Convict (v) to decide officially in a law court that someone is guilty of a crime:
- He has twice been convicted of robbery.
Fraudulent (Adj) - dishonest and illegal:
- A worrying trend for insurers has been a rise in fraudulent claims.
Businesses may now be criminally liable
Under the Criminal Finances Act 2017, which came into force on 30 September 2017,
businesses are now criminally liable if an employee or an associated person (an agent or
another other third-party) facilitate tax evasion (tạo điều kiện thuận lợi cho việc trốn thuế)
whilst providing services on their behalf.
The Act built on the existing Bribery Act 2010, which already deemed it a criminal offence
for individuals or businesses to evade tax. Yet, the Act made it hard for the authorities to
prove a business had been complicit (đồng lõa) in the evasion of tax, and the new
legislation gets over this problem.
Failure to comply with this new law can result in significant financial penalties and even
prison time, not to mention serious reputational damage. This means businesses need to
take responsibility and have procedures in place to protect themselves. If one of your
employees or a third-party individual (e.g. a consultant) evades tax, you need to be able to
prove that you had reasonable prevention procedures in place.
What's the maximum penalty for tax evasion in the UK?
Violating the Criminal Finances Act 2017 can have crippling consequences for an
organisation. The penalty for tax evasion can be anything up to 200% of the tax due and can
even result in jail time. For example, evasion of income tax can result in 6 months in prison
or a fine up to £5,000, with a maximum sentence of seven years or an unlimited fine.
Evasion of VAT carries similar punishment, though could result in a £20,000 fine.
Tax evasion cases and convictions in the UK
HMRC’s fraud investigations led to over 600 individuals being convicted for their part in
tax crimes in 2019. Their Fraud Investigation Service brings in £5 billion a year through
civil and criminal investigations. The examples below have a notable trend, that tax evasion
often occurs in tandem with other crimes such as smuggling and money laundering.
Her Majesty's Revenue and Customs: the UK government department that is responsible
for calculating and collecting taxes:
 - According to HMRC, some investments cannot be tax-free.
- HMRC said my claim for a tax refund had been rejected.
Internal Revenue Service: the US government department that is responsible for
calculating and collecting taxes:
- The IRS grants tax exemptions for charities and community organizations.
- His business was raided by IRS agents.

Antony Blakey and John Banyard, directors at Ethical Trading and Marketing attempted to
steal more than £60 million through a fraudulent tax avoidance scheme claiming to invest in
HIV research and conservation, were jailed for 14 and a half years.
A Berkshire-based gang selling illicit alcohol were jailed for more than 46 years. Evidence
showed that they stole £34 million in VAT and laundered £87m through more than 50 bank
accounts in Britain, Cyprus, Hong Kong, Dubai and other foreign countries.
Robert Zduniak was part of an organised gang that processed smuggled raw tobacco in
illegal factories. He was tracked down to a Prague hideaway and brought back to the UK to
serve an 8-year sentence for his part in a £17 million tax fraud.
Five people were jailed for 16 years after distributing and selling an estimated 4.8 m litres
of illegally mixed kerosene and diesel to unsuspecting motorists, including haulage
companies across the South East.
A father and son pair had been convicted for dishonestly claiming £1m in VAT repayments
after they lied about spending £14 million on building new properties. Stephen Howard, a
former Top Gear mechanic was jailed for helping them flee the UK to Spain.
Five tax fraudsters who devised a fake eco-investment scheme as a tax break for wealthy
investors were jailed for a total of 43 years. They were also ordered to repay £20 m, or face
another 39 years behind bars and still owe the money.
Dhanji Varsani claimed to be unemployed, while driving high-powered vehicles, playing at
top golf courses and enjoying holidays in places like Dubai. He was jailed for nearly 4 years
for smuggling almost 7 tonnes of hand-rolling tobacco and failing to pay the £1.2 m owed
in excise duty.
Dale Hicks, the voluntary treasurer of a charity for an ex-offenders charity (yes, you did
read that correctly!) was jailed for 3 years. He had tried to steal more than £330,000 in a
Gift Aid repayment fraud to fund a lavish holidays including a £25k cruise.
Clearly, there are some individuals out there who will go to great lengths to abuse the
system and not pay their taxes. But the convictions show just how serious the HMRC is
taking tax evasion. Prison sentences are getting longer too, and are likely to continue to do
so.
Famous US tax evasion cases
Walter Anderson
Walter Anderson's case is the biggest tax evasion case in U.S history. The
telecommunications entrepreneur was convicted for hiding his earnings through the use of
aliases, offshore bank accounts, and shell companies. While on trial in 2006, Anderson
admitted to hiding approximately $365 million worth of income. He was sentenced to nine
years in prison and issued a fine of almost $400 million in back taxes, fees and penalties.
Al Capone
Prosecutors worked for years to build a case against notorious crime boss Alfonse
“Scarface” Capone. Eventually, the only thing they could get him on was tax evasion, and
in 1931 Capone was sentenced to eleven years in prison and fined $80,000. Capone only
served seven years in prison, but it worked to scare other people off not paying their taxes.
More than $1 million in unpaid taxes were submitted the year after his conviction.
Leona Helmsley
Hotel operator Leona Helmsley and her husband were accused of billing millions of dollars
in personal expenses to their business in order to escape taxes. Helmsley, dubbed the
'Queen of Mean', was famously quoted as saying, "We don't pay taxes. Only the little
people pay taxes." She was convicted on three counts of tax evasion and served 18 months
in prison.

UNIT 8 ACCOUNTING AND FINANCIAL STATEMENTS

PREVIEW

Match the words or phrases from a - j with their definitions from 1 – 10

a. The income statement f. Beginning merchandise inventory
b. The balance sheet g. Gross profit
c. Drawings made by the owner h. Statement of financial position
d. Financial statements i. The accounting period
e. The cost of sales j. Highly skilled employees
1. would not have any effect on the income statement. - c
2. refer to the report on the results of operations and changes in financial position. d
3. provides information about the results of the business operation. - a
4. provides information about the resources (assets) acquired by the firm, including where
the resources come from (sources of assets). - b
Resources = assets: tài sản
Sources of assets: nguồn hình thành tài sản
- Basically, there are 2 main sources of assets: the owners’ equity and liabilities
5. is the excess net sales (doanh thu thuần) over cost of goods sold for a period. - g
Gross profit (n) lợi nhuận gộp
Net profit = profit after tax: lợi nhuận ròng
- The owners of the company enjoy / are eligible to all net profits of the company.
6. refers to price paid for the goods sold - e
7. is the cost of unsold merchandise at the beginning of the period - f

Inventory (n) hàng tồn kho

8. is another term for balance sheet - h

9. is not reported in a company’s financial statements - j
10. may best be described as the time span covered by the income statement. - i

READING 1
ACCOUNTING PROCESS AND ACCOUNTING BOOKS
Accounting is the process of identifying, measuring, recording, classifying,
summarizing, analyzing, interpreting and communicating the financial transactions and
events. Accounting helps in keeping systematic records to ascertain (phản ánh) financial
performance and financial position of an entity and to communicate the relevant financial
information to interested user groups. Transactions and events recorded by suitable account
headings are analyzed in term of debit and credit; and thus, assets become equal to equity
and liabilities. Accounts are classified as personal, real and nominal types. Transactions and
events are first journalized, then posted to suitable ledgers accounts and all accounts are
balanced at the end of year. Generally, balances of the nominal accounts are transferred to
profit and loss account for determination of profit or loss and balance of personal and real
accounts are carried to balance sheet.

- Financial transactions = business / economic transactions (activities): nghiệp vụ kinh

tế
- Identify (v) financial transactions: xác định = recognize (v) – ghi nhận
- Record (v) ghi lại records (n) – số liệu ghi chép
- Journal (n) – sổ nhật ký = book of original journalize (v)
- Measure (v) tính toán
- Classify (v) định khoản
- original (source) documents, including contracts, bills, receipts, etc. – chứng từ gôc
- groups of similar transactions – nhóm các nghiệp vụ giống nhau
- single entry bookkeeping – hoạt động ghi sổ đơn
- double entry bookkeeping – hoạt động ghi sổ kép
- summarize (v) – tổng hợp
- analyze (v) – phân tích
- analyst (n) – người phân tích
 - analysis (n) sự phân tích
- financial statements – báo cáo tài chính
- three common financial statements are: balance sheets, income statements, cashflow
statements
- financial reports:
- interprete (v) – thuyết minh – notes (footnotes) to the financial statements– phần
thuyết minh cho báo cáo tài chính
- communicate accounting information: cung cấp thông tin
Interested user groups include:
+ the management – ban lãnh đạo
+ investors – nhà đầu tư
+ employees of the entity – nhân viên công ty
+ governing agencies – cơ quan chủ quản
+ auditors – kiểm toán viên
+ students majoring in finance and accounting – sinh viên chuyên ngành tài chính –
kế toán
+ journalists – nhà báo
Post (v) - posting (n) kết chuyển
Liquidity (n)
Resources = assets
Sources of resources / assets: nguồn hình thành tài sản
Basically there are 2 sources of equity and liabilities

Responsibilities of accountants in general

Accountants have to:
- Identify and bookkeep (record) economic (business) transactions (activities) which
arise during the accounting period. On daily basis, these transactions are recorded in
a journal in terms of money based on the original (source) documents.
- Classify all economic transactions during a certain period of time into similar groups
regularly (monthly/ quarterly). Each group of transactions is recorded in at least 2
accounts (this is known as the double entry bookkeeping method)
- Summarize and analyze accounting data based on the accounting books to prepare
(construct / produce) financial statements and financial reports at the end of the year.
- Communicate accounting information to interested user groups

Topic question:
- What are responsibilities of accountants in general?/ What is the accounting process?
ol
 The process of accounting, depicting how information flows from the source
documents up to the stage where final accounts (financial statements) are prepared, can be
shown as:

Source Documents Represent all documents in business which contains financial

records and act as evidence of the transactions which have
taken place.

Book of Original These are books which are used in recording the transactions
Entry for the first time. The books are maintained for memorandum
purpose only and will not form part of the double entry system.
Examples include: Purchase day book, Cash book, Sales day
book and purchases return day book.

Ledger Accounts These form part of double entry system and used to record the
transactions for the period. These are accounts where
information relating to a particular asset, liability, capital,
income and expenses are recorded.

Trial Balance Contains the totals from various ledger accounts and act as a
preliminary check on accounts before producing final accounts.

Final Accounts Financial Statements are produced to show the financial

performance and financial position of a business entity.

BASIC ACCOUNTING PROCEDURES – JOURNAL ENTRIES

1. Double entry system
Double entry system of book-keeping has emerged in the process of evolution of various
accounting techniques. It is the only scientific system of accounting. According to it, every
transaction has two-fold aspects – debit and credit and both the aspects are to be recorded in
the books of accounts. For example, if a business acquires something then either it must
have been given by someone or it must have been acquired by giving up something. On
purchase of furniture either the cash balance will be reduced or a liability to the supplier
will arise. This has been made clear already, the Double Entry System is so named since it
records both the aspects. We may define the Double Entry System as the system which
recognizes and records both the aspects of transactions. This system has proved to be
systematic and has been found of great use for recording the financial affairs for all
institutions requiring use of money.

Acquire (v) = buy = purchase + sth: mua cái gì đó

Give up sth : từ bỏ cái gì
Aspect (n) khía cạnh
financial affairs = financial transactions = financial operations
2. Advantages of Double Entry System
This system affords the under mentioned advantages:
(i) By the use of this system the accuracy of the accounting work can be established,
through the device of the trial balance.
(ii) The profit earned or loss suffered during a period can be ascertained together
with details.
(iii) The financial position of the firm or the institution concerned can be ascertained
at the end of each period, through preparation of the balance sheet.
(iv) The system permits accounts to be kept in as much details as necessary and,
therefore affords significant information for the purposes of control etc.
(v) Result of one year may be compared with those of previous years and reasons for
the change may be ascertained.
It is because of these advantages that the system has been used extensively in all countries.
Purpose of contral: phục vụ cho mục đích quản lý
Afford sth: đảm bảo
Do sth in detail (adv) – một cách chi tiết
Permit sth/ sbd to do sth
be compared with : được so sánh với
3. Accounts
Accounts are financial records of an organization that register all financial transactions, and
must be kept at its principal office of business. The purpose of these records is to enable
anyone to appraise the organization's current financial position with reasonable accuracy.
Firms present their annual accounts in two main parts: the balance sheet, and the income
statement (profit and loss account). The annual accounts of a registered or incorporated firm
are required by law to disclose a certain amount of information, and to be certified by an
external auditor that they present a 'true and fair view' of the firm's financial affairs.

Principal office of business refers to the management (ban lãnh đạo) / the Board of
Directors (Ban Quản trị)
Disclose (v) – công bố công khai
Registered firms: công ty niêm yết.
Certificate (n) chứng chỉ/ giấy chứng nhận
Certification (n) sự chứng nhận
Certify (v) chứng nhận, kiểm định
External auditor (n) công ty kiểm toán độc lập
This is an example for illustration:
A person starts his business with, say, $10,000. Transactions entered into by the firm will
alter the cash balance in two ways, one will increase the cash balance and other will reduce
it. Payment for goods purchased, for salaries and rent, etc., will reduce it; sales of goods for
cash and collection from customers will increase it.
We can change the cash balance with every transaction, but this will be cumbersome.
Instead it would be better if all the transactions that lead to an increase are recorded in one
column and those that reduce the cash balance in another column; then the net result can be
ascertained. If we add all increases to the opening balance of cash and then deduct the total
of all decreases, we shall know the closing balance. In this manner, significant information
will be available relating to cash.
The two columns which we referred above are put usually in the form of an account, called
the “T” form. This is illustrated below by taking imaginary figures:

CASH
Increase Decrease
(Receipt) (Payment)
$ $
Opening Balance 10,000 1,000
2,500 300
2,000 200
50 500
1,350
400 Total 2,000
New or Closing Balance 14,300
16,300 16,300

What we have done is to put the increase of cash on the left - hand side and the decrease on
the right - hand side; the closing balance has been ascertained by deducting the total
payments, $2,000 from the total of the left – hand side. Such a treatment of receipts and
payment of cash is very convenient.
The proper form of an account is as follows:
ACCOUNT
Dr. Cr.
Date Particulars Ref. Amount Date Particulars Ref. Amount
$ $

The columns are self-explanatory except that the column for reference (Ref.) is meant to
indicate the sources where information about the entry is available
COMPREHENSION QUESTIONS
1. How is accounting defined?
2. What is difference between book-keeping and accounting?
3. In daily operations, which book are transactions of a business firstly recorded in?
4. For what purpose is this book maintained?
5. What does “double entry bookkeeping” mean?
6. Which book forms part of double entry bookkeeping?
7. What are advantages of double entry system?
8. What are accounts?
VOCABULARY EXERCISES
Exercise 1: Choose the best answers.
1. Which one of the following is not a short-term asset?
A. Cash reserves of the organization
B. Machinery
C. Funds collected from debtors
D. Inventories
2. Which of the following equations cannot be derived from the basic accounting equation?
A. Assets – Liabilities = Owners’ Equity
B. Liabilities = Assets – Owner’s Equity
C. Owners’ Equity = Liabilities – Assets
D. Assets – Owners’ Equity = Liabilities
3. Which of the following transactions causes ‘total assets to increase by $10,000’?
A. Purchasing an automobile for $10,000 cash.
B. Purchasing $10,000 of office furniture on account.
C. Collecting a $10,000 account receivable
D. Paying a $10,000 liability.
4. If assets are $4,000 –
A. Stockholders’ equity must be $4,000.
B. Liabilities must be $4,000.
C. Stockholders’ equity plus liabilities must be $4,000.
D. None of the above.
5. In the balance sheet equation, an increase in an asset –
A. May be accompanied by an increase in a liability.
B. May be accompanied by a decrease in an asset.
C. May be accompanied by an increase in revenues.
D. All of the above.
6. Purchased office supplies for inventory on account.
A. Increase in one asset, decrease in another asset.
B. Increase in an asset, increase in a liability.
C. Increase in an asset, increase in stockholder’s equity.
D. Decrease in an asset, decrease in a liability.
7. Paid rent for October in September.
A. Increase in one asset, decrease in another asset.
 B. Increase in an asset, increase in a liability.
C. Increase in an asset, increase in stockholder’s equity.
D. Decrease in an asset, decrease in a liability.
8. Earned service revenue, receiving cash.
A. Increase in one asset, decrease in another asset.
B. Increase in an asset, increase in a liability.
C. Increase in an asset, increase in stockholder’s equity.
D. Decrease in an asset, decrease in a liability.
9. Business obligation
A. Asset
B. Liability
C. Capital
D. None of the above
10. Which of the following is not a current liability
A. Unearned rent
B. Notes payable
C. Mortgage payable
D. None of the above

Exercise 2: Fill in the gaps in the following passage with suitable words.
FOUR PHASES OF ACCOUNTING
Based on the definition, there are four phases of accounting.
(1) …………….: This is technically called bookkeeping. Some people confuse
bookkeeping and accounting as one and the (2) …………. However, bookkeeping is only a
part of accounting – the recording phase. In this phase, business (3) ………… are recorded
systematically and chronologically in the proper accounting books. There are two kinds of
bookkeeping: the single-entry bookkeeping and the (4) ………. entry bookkeeping. Single
entry bookkeeping does not show the two-fold effects of business transactions. It shows
only the debit or the credit of each transaction. The double entry bookkeeping, however,
reflects the two-fold effects of business transactions. It has a (5) …………. and a credit.
(6) ……………...: In this phase, items are sorted and grouped. Similar items are classified
under the same name. They may be classified as asset accounts, liability accounts, capital
accounts, revenue accounts and (7) …………. accounts. This classification is useful to the
needs of management.
(8) ……………: After each accounting period, data recorded are summarized through
financial statements. These reports are submitted to the management at the (9) …………. of
each accounting period or as the need arises.
Interpreting. Usually, due to the technicality of accounting reports, the accountant’s
interpretation on the financial statement is needed. In this case, (10) ………… reports are
submitted together with the financial statements.
READING 2 FINANCIAL STATEMENTS
There are four main financial statements. They are: (1) balance sheets; (2) income
statements; (3) cash flow statements; and (4) statements of shareholders’ equity. Balance
sheets show what a company owns and what it owes at a fixed point in time. Income
statements show how much money a company made and spent over a period of time. Cash
flow statements show the exchange of money between a company and the outside world
also over a period of time. The fourth financial statement, called a “statement of
shareholders’ equity,” shows changes in the interests of the company’s shareholders over
time.
Let’s look at each of the first three financial statements in more detail.
Balance Sheets
A balance sheet provides detailed information about a company’s assets, liabilities
and shareholders’ equity.
Assets are things that a company owns that have value. This typically means they can
either be sold or used by the company to make products or provide services that can be sold.
Assets include physical property, such as plants, trucks, equipment and inventory. It also
includes things that can’t be touched but nevertheless exist and have value, such as
trademarks and patents. And cash itself is an asset. So are investments a company makes.
Liabilities are amounts of money that a company owes to others. This can include all kinds
of obligations, like money borrowed from a bank to launch a new product, rent for use of a
building, money owed to suppliers for materials, payroll a company owes to its employees,
environmental cleanup costs, or taxes owed to the government. Liabilities also include
obligations to provide goods or services to customers in the future.
Shareholders’ equity is sometimes called capital or net worth. It’s the money that would be
left if a company sold all of its assets and paid off all of its liabilities. This leftover money
belongs to the shareholders, or the owners, of the company.
The following formula summarizes what a balance sheet shows:
ASSETS = LIABILITIES + SHAREHOLDERS' EQUITY
A company's assets have to equal, or "balance," the sum of its liabilities and shareholders'
equity.
A company’s balance sheet is set up like the basic accounting equation shown above.
On the left side of the balance sheet, companies list their assets. On the right side, they list
their liabilities and shareholders’ equity. Sometimes balance sheets show assets at the top,
followed by liabilities, with shareholders’ equity at the bottom.
Assets are generally listed based on how quickly they will be converted into cash.
Current assets are things a company expects to convert to cash within one year. A good
example is inventory. Most companies expect to sell their inventory for cash within one
year. Noncurrent assets are things a company does not expect to convert to cash within one
year or that would take longer than one year to sell. Noncurrent assets include fixed assets.
Fixed assets are those assets used to operate the business but that are not available for sale,
such as trucks, office furniture and other property.
Liabilities are generally listed based on their due dates. Liabilities are said to be
either current or long-term. Current liabilities are obligations a company expects to pay off
within the year. Long-term liabilities are obligations due more than one year away.
Shareholders’ equity is the amount owners invested in the company’s stock plus or minus
the company’s earnings or losses since inception. Sometimes companies distribute earnings,
instead of retaining them. These distributions are called dividends.
A balance sheet shows a snapshot of a company’s assets, liabilities and shareholders’
equity at the end of the reporting period. It does not show the flows into and out of the
accounts during the period.
Income Statements
An income statement is a report that shows how much revenue a company earned
over a specific time period (usually for a year or some portion of a year). An income
statement also shows the costs and expenses associated with earning that revenue. The
literal “bottom line” of the statement usually shows the company’s net earnings or losses.
This tells you how much the company earned or lost over the period.
Income statements also report earnings per share (or “EPS”). This calculation tells
you how much money shareholders would receive if the company decided to distribute all
of the net earnings for the period. (Companies almost never distribute all of their earnings.
Usually they reinvest them in the business.)
To understand how income statements are set up, think of them as a set of stairs. You
start at the top with the total amount of sales made during the accounting period. Then you
go down, one step at a time. At each step, you make a deduction for certain costs or other
operating expenses associated with earning the revenue. At the bottom of the stairs, after
deducting all of the expenses, you learn how much the company actually earned or lost
during the accounting period. People often call this “the bottom line.”
At the top of the income statement is the total amount of money brought in from
sales of products or services. This top line is often referred to as gross revenues or sales. It’s
called “gross” because expenses have not been deducted from it yet. So the number is
“gross” or unrefined.
The next line is money the company doesn’t expect to collect on certain sales. This
could be due, for example, to sales discounts or merchandise returns.
When you subtract the returns and allowances from the gross revenues, you arrive at
the company’s net revenues. It’s called “net” because, if you can imagine a net, these
revenues are left in the net after the deductions for returns and allowances have come out.
Moving down the stairs from the net revenue line, there are several lines that represent
various kinds of operating expenses. Although these lines can be reported in various orders,
the next line after net revenues typically shows the costs of the sales. This number tells you
the amount of money the company spent to produce the goods or services it sold during the
accounting period.
The next line subtracts the costs of sales from the net revenues to arrive at a subtotal
called “gross profit” or sometimes “gross margin.” It’s considered “gross” because there are
certain expenses that haven’t been deducted from it yet.
The next section deals with operating expenses. These are expenses that go toward
supporting a company’s operations for a given period – for example, salaries of
administrative personnel and costs of researching new products. Marketing expenses are
another example. Operating expenses are different from “costs of sales,” which were
deducted above, because operating expenses cannot be linked directly to the production of
the products or services being sold.
Depreciation is also deducted from gross profit. Depreciation takes into account the
wear and tear on some assets, such as machinery, tools and furniture, which are used over
the long term. Companies spread the cost of these assets over the periods they are used.
This process of spreading these costs is called depreciation or amortization. The “charge”
for using these assets during the period is a fraction of the original cost of the assets.
After all operating expenses are deducted from gross profit, you arrive at operating
profit before interest and income tax expenses. This is often called “income from
operations.”
Next companies must account for interest income and interest expense. Interest
income is the money companies make from keeping their cash in interest-bearing savings
accounts, money market funds and the like. On the other hand, interest expense is the
money companies paid in interest for money they borrow. Some income statements show
interest income and interest expense separately. Some income statements combine the two
numbers. The interest income and expense are then added or subtracted from the operating
profits to arrive at operating profit before income tax.
Finally, income tax is deducted and you arrive at the bottom line: net profit or net
losses. (Net profit is also called net income or net earnings.) This tells you how much the
company actually earned or lost during the accounting period. Did the company make a
profit or did it lose money?
Earnings Per Share or EPS
Most income statements include a calculation of earnings per share or EPS. This calculation
tells you how much money shareholders would receive for each share of stock they own if
the company distributed all of its net income for the period.
To calculate EPS, you take the total net income and divide it by the number of outstanding
shares of the company.
Cash Flow Statements
Cash flow statements report a company’s inflows and outflows of cash. This is
important because a company needs to have enough cash on hand to pay its expenses and
purchase assets. While an income statement can tell you whether a company made a profit,
a cash flow statement can tell you whether the company generated cash.
A cash flow statement shows changes over time rather than absolute dollar amounts
at a point in time. It uses and reorders the information from a company’s balance sheet and
income statement.
The bottom line of the cash flow statement shows the net increase or decrease in
cash for the period. Generally, cash flow statements are divided into three main parts. Each
part reviews the cash flow from one of three types of activities: (1) operating activities; (2)
investing activities; and (3) financing activities.
Operating Activities
The first part of a cash flow statement analyzes a company’s cash flow from net
income or losses. For most companies, this section of the cash flow statement reconciles the
net income (as shown on the income statement) to the actual cash the company received
from or used in its operating activities. To do this, it adjusts net income for any non-cash
items (such as adding back depreciation expenses) and adjusts for any cash that was used or
provided by other operating assets and liabilities.
Investing Activities
The second part of a cash flow statement shows the cash flow from all investing
activities, which generally include purchases or sales of long-term assets, such as property,
plant and equipment, as well as investment securities. If a company buys a piece of
machinery, the cash flow statement would reflect this activity as a cash outflow from
investing activities because it used cash. If the company decided to sell off some
investments from an investment portfolio, the proceeds from the sales would show up as a
cash inflow from investing activities because it provided cash.
Financing Activities
The third part of a cash flow statement shows the cash flow from all financing
activities. Typical sources of cash flow include cash raised by selling stocks and bonds or
borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash
flow.
Exercise 1: Choose the best answers A, B, C or D.
1. Which of the following statements is correct?
A. Beginning retained earnings + net income – dividends = ending retained earnings
B. Beginning retained earnings - net income + dividends = ending retained earnings
C. Beginning retained earnings + net income + dividends = ending retained earnings
D. Beginning retained earnings - net income – dividends = ending retained earnings
2. The declaration and payment of a cash dividend is reported in the
A. Income statement as an expense
B. Statement of cash flows as a source of cash
C. Statement of retained earnings as a subtraction from beginning retained earnings
D. None of the above
3. A business that prepares quarterly financial statements
A. Must close its accounts quarterly
B. Must adjust its accounts at least quarterly
C. May not issue annual financial statements
D. Must obtain special permission from the IRS
4. Why is cash flow more important than accounting income?
A. Cash can be used to buy finished goods from suppliers
B. Cash can be used to buy raw materials and make into finished goods
C. Accounting methods recognize income at times other than when cash is actually
received or spent.
D. Cash has more liquidity
5. What does cash flow from operation include?
A. Depreciation
B. Net income
C. Increase in current asset
D. Decrease in liabilities
6. The change statements explain changes in a company’s position from one date to another.
The change statements include –
A. Income statement, statement of cash flows, and retained earnings statement.
B. Balance sheet, earnings statement, and statement of cash flows.
C. Income statement, position statement, and statement of cash flows.
D. Income statement, balance sheet, and retained earnings statement.
7. Preparation of financial statements will be made easier with the aid of a
A. Trial balance
B. Worksheet
C. Ledger
D. None of the above
8. The cost of merchandise bought for the period is
A. Sales
B. Merchandise
C. Purchase
D. None of the above
9. The balance sheet is a statement showing
A. The rights and things of value owned by the business
B. The amounts owed by the business
 C. The financial interest of the owner in the assets of the business
D. All of the above
10. The difference between the sales and the cost of the sales is
A. Net sales B. Net purchases
C. Net profit D. None of the above
Exercise 2: Fill in the gaps in the following passage with suitable words.
RELATIONSHIPS BETWEEN FINANCIAL STATEMENTS
In a technical sense, the income statement is subordinate to the (1) ……….. sheet. This is
because it shows in some detail the items that collectively account for most of the period’s
net change in only one balance sheet item, (2) ………… earnings. Nevertheless, the
information on the income statement is regarded by many to be more important than (3)
………….. on the balance sheet. This is because the income statement reports the (4)
…………. of operations and indicates reasons for the entity’s (5) …………….. (or lack
thereof). The importance of the income statement is illustrated by this fact: In situations
where accountants in recording an event must choose between a procedure that distorts the
balance sheet or one that distorts the income statement, they usually choose not to (6)
………….. the income statement.
The balance sheet and income statement are said to articulate because there is a definite (7)
…………….. between them. More specifically, the amount of net income reported on the
income statement, together with the amount of dividends, explains the change in retained
earnings between the two balance sheets prepared as of the beginning and the end of the
accounting period.
Although many consider the balance sheet to be the most fundamental financial statement,
the income statement is also very important because it indicates the profitability of the
business. As you will learn, if a company repeatedly shows a net (8) ……….., when
expenses exceed revenues, the company will not be able to survive unless owners or
creditors are willing to provide more resources.
The retained earnings statement explains the changes that occurred in the retained earnings
portion of stockholder’s (9) ………….. during a period of time due to business operations
(net income) and payments made to owners in the form of dividends which are returns to
stockholders for their investment in the business. Retained earnings are only shown in
statements prepared by corporations.
The statement of cash flows classifies the three major types of business activities –
investing, financing, and (10) ……………. – and shows where the cash came from during a
period, how the cash was used, and the resulting cash balance.