Learning outcomes * Understand the imoorance ofiffeent parts of corporate financial staternents 1 Use key nance vocabulary = Give advice abour drawing up 2 balance sheet 1 Discuss the following questions. ‘= How important do you thinkit's to keep a record of your personal 1» What expenditures do you have every month? '= What financial statements do companies keep? 2 Think about these items of company finances. Are they ‘examples of income or expenditure? Complete the table. sales ofproducts or services payment of salaries purchase of ew materials rent on property interest received on investinents Interest paid on bank loans buying machinery 11 Before you listen to the first part of the interview, discuss the following questions. 1 Why da companies draw up financial statements? 2. Which groups of people inside and outside the company are the financial statements for 2 Listen to the first part ofthe interview with Andriy Tatarchuk. 1 How does he answer questions 1 and 2 that you discussed above? 2 Why are these groups of people interested in the financial staternents of company? 3 Doyou think the employees of a company would be interested in the financial statements? Why/Why not? What ‘about the company's business partners, e.g. the suppliers? What other stakeholders would be interested in the corporate financial statements? Cr Business view ‘Andry Tatarchuk, Financial Adviser and Sales Manager at Enmark Leasing, Kiev, Ukraine 100 11 AccounTING Critical analysis, | me companies try to make thelr financial figures look better | han they are. Others try to make them look worse. Why do you ene Language focus: Th bal ‘Two of the most important company financial statements are the profit and loss account (also known as the income statement) and the balance sheet (also known as the statement of financial position). ‘The profit and loss account shows the financial developments ‘over period of time, eg.a quarter, a year, whereas the balance sheet is a pleture of what the company owns and what it owes ‘atany one moment.11 Match the terms with their definitions. TL tumover a money owed to the bank 2 costofsales | b the gross profit minus the expenses and taxes 3 gross profit | € the value of sales made “4 expenses d companies which owe money 5 net profit € the overhead costs of running a business, eg-heating, electricity 6 creditors the direct costs of manufacturing or ‘buying items to sell them later 7 debtors {@ money kept until itis needed in the future 8 reserves 'h turnover minus the cost of sales 9 overdraft ‘companies to which moneyisowing | 2 Read the extract below and complete the statement with the following terms. ‘gross profit net proht turnaver cost of sales Last year, the bookshop chain Better Books sold 100,00 books at an average price of €1000. It bought the books at an average price of 500, 0008 1 1000 2 500 ——E 500 Less expenses: Heating and lighting 50 Insurance 25 Administrative expenses 50 Salaries 30 Total expenses 175 ——— 325 13 Abalance sheet shows the company’s assets (what the ‘company owns) and the liabilities (what the company owes). Look at the following terms. Do they belong to the assets or the liabilities section of the balance sheet? Complete the table. creditors reserves overdralt debtors stock (or inventory) Assets Liabilities 4 What do you think are the financial assets and liabilities for an employee in your organisation or a student in your class? '5 Doyou think its important for employers to know about the financial situation of their employees? Why/Why not? 11 Lookat these extracts from an income statement anda statement of financial position for a Chinese medical company. ‘Are the following increasing or decreasing? sales cost ofsales adminisiatve expenses trademarks, patents and development costs Income statement ThisyearUS$000 Last yearUS$000 Sales 56658 45885 Castofsales (22.940) (19.486) Geos profit BrIB 26399 Seling expenses (9541) (15,393) ‘Administrative expenses (13993) (15028) Other net operating income 366 182 Operating profs) 530 (3760) France costs 0233) 40) Profit/Lss) before taxation 7 (4,000) Tanation charge 4158) (1085) Loss forthe period (1,196) (5085) Statement of financial postion ThisyearUS§000 ——_Lastyear US $000 ASSETS (on-cuent) Property plant andequipment 25662 25946 Leasehold land eo 6082 Good 7458 7082 Trademarks patents and aus 5 development costs ASSETS curent) Inventories a wm Trade receivables 26978 nan ther receivables and repayments 2,765 25 (Gshand bank balances, 33,576 34.206 quTy Shar capital 5129 51209 Reserves ans Ba 73 75,18 UaBIUTS Trade payables, 6937 5250 Gurent taxis ns 336 Short-term bankloans 1151 7606 Defered taxis sr 289 11 ACCOUNTING 1012 Doyou think the company at the time of these statements was performing well or performing badly? Why? 3 Listen to Andriy Tatarchuk and answer the following questions. 1 Did he agree with your opinion on how the company was perforrning? What did he think? 2. According to Andriy, what does the rise in cost of sles and tradematks, patents and development costs mean? '3 Why does he think the administrative expenses are decreasing when normally a growing company would spend more on these? 4 Listen again and complete the extracts with these phrases. the previous period fewer bonuses Is quite dependent on less money cutthelrexpenses. isselling growth “The Increasing cost of sales would tellne thatthe compary 1 _____ Marketing and Advertising and Sales. Also ifyou look at the balance sheet, there is a significant increase in trade ‘marks, patents and development costs so that probably shows that the company 2 ‘a unique kind of product. Normally in tis case | wouldnt expect administrative expenses to decrease because the company seems to be growing Is losses are lower than 3 ‘he sales have increased and we see 4 inthis company. In such cases, the administrative ‘expenses would be expected to rise and here they have decreased. ‘The only thing that can justfy that is probably the company is tying tS al kinds of expenses, especially administrative, {and thiss probably connected with the wider economic situation rather than how the company is performing, You know, the company starts paying 6. 10 the employees. It spends 7_—___on coxporate events and so on. It can only be Justified by that. Many people have problems with managing thelr own finances. ‘Whats the situation in your culture? Isit only a problem for ‘young people who are inexperienced with managing money? 1 Lookat these tips and decide whether they refer to the long term or the short term. 2 Save some money each month eer 102 11 accounTiNG k of these tips. What other tips 2 In pairs, discuss what you ‘would you add to the lst? 3 Personal debt is an increasing problem. Why do you think thisis? ‘Agnes Adamuska has been in business as a beauty therapist. for a year and has drawn up her balance sheet herself. Here is. her fist attempt. As you can see, she has put some assets and liabilities in the wrong place. Can you see any other errors? ono Propet 30 Stock of materials i Seige cost af spent 8 ——. Creitors 5 Cash 2 — é B Less Debio 5 Netoument sets SF Netamsts employed 6 Overdat D Share capital x0 Longe oan i %6 stage ‘Work in pairs and draw up the balance sheet correctly and make sure it balances. When you have finished, you can check your answer with the balance sheet on page 139. Stage2 Ifyou know that you have to draw up a balance sheet at regular intervals, you need to make sure that you set goals and deadlines. What advice would you give Agnes about this? Stage3 (One of you will take the role of Agnes and the other the role of, the accountant who has drawn up the correct balance sheet. Work out the dialogue between them. Stage 4 Sit together with two other pairs and act out your dialogue for them, Give each other feedback on the prepared dialogues ~ on the financial advice and on the language.Learning outcomes ' Use key vocabulary connected with cash flow. '= Recognise and use modals of advice, obligation and necessity. ' Discuss a cash-flovr problem and possible solutions. Profile: New South Wales Trade and Investment Trade & investment, Regional Infrastructure NSW | & Services In New South Wales, Australia, the government department responsible for the development of industry and investment has set up an advisory service to help small businesses, Their website offers advice and information as well as case studies about small lesson is one of these. How do people usually pay bills? Match the people's ‘comments below with the method of payment they refer to. cash creditcard debitcacd bankiransler direct debit 1 Talivays pay with this card if possible because the money | pay Isrtttaken from my bank account until the end of the month: 2 ‘Our electricity bli paid automatically. he company takes the ammount from our bank account each month, We signed an ‘agreement with the electricity company and the bank which ets them do this 3 “paid their last bilby typing in the name ofthe company and entering the amount using internet banking, My bank took the ‘money from my account and put It into thelr account? 4 "dort lke using plastic so that leaves me only one option: 55 ‘Where live, paying with this card fs easy and cheap, You just insert your card in the machine, enter your PIN and the payment is ‘made from your bankaccount more or less immediately’ Which of the methods of payment above do you use? What do you use them for? What methods of payment do most people use in your country? 3 When you buy a large item like a washing machine, do you prefer to pay fort at once or pay part each month? What are the problems with buying something on credit? Young and small companies often have cash-flow problems. Although they may have large sums of money invested in ‘equipment and property, they do not have the cash to deal with payments. Read the first part ofthe article and note down three things which are causing the cash-flow problem. eno Gis JW Southwest Construction Southwest Construction is a thriving construction business in Western Sydney. The business is owned by Tony, 2 qualified builder who specialises in bricklaying, floor and wall ting, and installation of air-conditioning systems. Besides Tony, the owner, the business employs to full time people and also has two sub-contractors ‘Tony's business has grown steadlly in recent years, allowing him to take on larger-scale projects. However, Tony has experienced some cash-flow problems. One problem is that there isa lag between the cash going out and the cash ‘coming in from jobs. He has to pay wages, which are paid fortnightly, and to pay suppliers who are generally paid on delivery of the goods or within seven days; the invoices which he sends out are usually for a30% deposit tobe paid immediately, and then the balance for ful payment is biled {80 days after completion of the work ‘Tony also waits until the end ofthe month to invoice all the finished jobs 50 he can do athe paperwork a one time. He ‘also does not ike hassling people for money and he tends 2» {0 let outstanding debts go on too long before following them up as he does not want to upset customers that could give him more workin the future. To manage this problem, Tony uses credit cards. to supplement his cash when needed, and then pays the credit card off once payments come in. This system 1s expensive in interest costs and also dificut to manage because sometimes the amount of money accessed on credit cards adds up toa high figure and even exceeds Mis availabe creat limit. 2» Tony finds it increasingly dificult to manage cash flow. ‘The larger-scale projects mean that his cash requirements and problems are made worse because there ao larger ‘amounts of cash going out and there are longer delays for ‘cash coming in2. Are these statements about Southwest Construction true or false? 1 Tonys business has not been successful up til now. 2. The company is having problems paying its bil 3 The owner sends out invoices for work as soon a i 's completed. 4 Tony asks people to pay their lls promptly 5 The payments Tony makes with his creditcard are sometimes ‘more than the amount he is allowed to spend with it 3 Find words In the article to replace the words underlined in the sentences below. 1 If there isa delay between money coming into the company and ‘money going out you have a cash-flow problem. 2 I pay my canteen bills at work every tuo weeks. 3 Weve already pad 20% ofthis: when do we have to pay the rst? 4 We must remember fo send them the bill next week 5 They keep calling up and bothering us about an invoice we have never recelved! 6 The mney which people owe us from last month is more than 200001 7 You could add to your cash income by sending out the bilson time Read the rest of the article and answer the questions. 11 Why is there a danger thatthe suppliers may not want to work with the company any more? 2 What could happen if ony allows the situation to continue? 3 Why | there a gap between cash inflows and outflows? 4 Why might Southwest Construction not be able to finish two of their current projects? ‘The problem is that Tony is paying his creditors lat al the time and thare is a rsk of some suppliers refusing to sel to him, Tha larger projects also require him to purchase expansive pleces of equipment and this places an addtional «strain on his finances. Clearly Tony is now ina ‘cash crisis and the current stale cannot continue or Tony will Be at Severe risk of losing his business. Firstly, Southwest Construction is experiencing @ cash shortage because there Is @ gap between cash inflows w and outflows. This is due to the fact that the company {oes not have a prompt biling system. For example, when ‘Tony completes a few projects inthe first two weeks of the month, instead of biling customers instantly, he waits ti the end of the month to get all completed projects invoiced 1s at one time, ‘Secondly, lage projects take an average of six weeks to ‘complete, creating additional dolay in biling and getting paid Finaly, two of their current projects require special 0 equipment, and this means a large amount of cash futlay, Unfortunately, Southwest Construction has no cash toppay this. Sour Caso study fom the website ofthe = ‘New South Wales Government, Ausrala + 104 11 accounrinc Language focus 1: Terms to describe cash flow Underline the odd word or expression out in each line and explain why. 11 anadditional stain extramoney more pressure 2 cashcow cashcriss _cashproblem 3 ingreatdanger —_atsevererisk enormous chance: 4 Income expenditure outflow 5 ontime accurate prompt 6 cashshortage ——cashooutlay cash payment 7 your debtors yourcreditors people who owe you money Entra: 11 Lookat these examples from business conversations where people use the modal verbs must, have to, need to, should and ‘ought to. 11 Which ones are used to talk about obligation or necessity? 2 Which ones are used for advice or to make suggestions? ‘Your invoice has to match the number of orders. 'b Will Samantha do that for me or da | have to do that myself? «¢ I don't think you should give them a discount. «Should just photocopy these so that you've got the details” € forgot toring about that. | must ring on Monday about it. Ito good saying well it might do that ort might not. We need ta know, {9 Whar time do you need to leave today then? hh We probably ought to take a photocopy ofthis. ‘Avoid saying’you must'to tell someone to do something: should, have to and need to are more polite and are also used ‘much more in business situations.2 Now lookat these examples of people using the negative form of the modals. 11 Which ones are used to say that something s not allowed or nota good idea? 2. Which ones are used to say that something Is nat necessary or not an bligation? 2 Insurance companies say you must test the equipment, because if you testi, you might overload i You dont have to take the documents to the meeting | sent them tothe secretary yesterday, « Ive got some additional financial and personnel stuff that ought _ngL19 be on the central fling system, «d Well no, you dont need to update the database, because it updates automatically. © Most of this sin the handbook, so you neednt bother to copy this down Users shoul be storing personal fleson the C dive, 3 Some of the above verbs follow different grammar rules from ‘other modal verbs. Which ones use don forming questions and negatives? Find examples in exercises 1 and 2 to complete the tables. Which verb has two possible negative forms? Negative: verb+notin't Negative: do notidon't + verb Question: verb + subject rmustl..? ‘you muse Question: do + subject + verb 4 Complete the sentences with mustn‘, shouldn't or don'/ doesn't haveto. 1 Putiton the ist to be done next month, It_____be done today. 2 |___be too long, Bob, because ve got to go at five clock 3 You. help him too much. He can do the accounts himself 4 Wel take care ofthe delivery. You. ‘worry about ary more, 5 |____forget to thank them for the invitation, {6 We should start invoicing in December, wwe? 5 Must is often used for something the speaker thinks is, necessary, important or urgent to do. Example: | forgot to ving about trat. | must ring on Monday about it Example: We must set ourselves a cost-reduction target You can also use need to or should for this, but they are not as strong as must. Example: Right, wel, we need to sort that cut immediatly Have tos often used for an obligation or necessity outside the speaker's control, such as a procedure or regulation. Example: But arything that has to be installed on the desktop, ‘somebody has 40 check 4 make sure it works on XP. Think about your own daily life and work. What are some things that you are obliged to do because of certain regulations or procedures? Example: | have to pay my bills on the first of the month. Are there things that you are not obliged to do? Example: | don't have to start work ob a. particular tire. | don't need to write down my hours of work Now think of things that are important or urgent for you to do. Example: | must forish a report that | am working on. | really should get some more exercise, Ca Even very small businesses should always focus on cash-flow ‘management because poor cash management can lead toa ‘cash crisis and place the business at risk. Stage1 Look at these tips on good cash-flow management: * Good cash-flow management is about reducing or eliminating the lag between cash inflow and cash outflow. * The solution to a cash-flow problem is usualy simple, eg. prompt biling, improving creditor terns, chasing late payments, and getting progressive payments "= Gompanies should use a system to record their cashflows (a cash flow tacking sheet] and to predict their cash Flaws fa cash-flow Projection sheet) so that they have a clear averview oftheir cashflow. * Fdebtors donot pay promptly they need to be reminded, Work in pairs. Look again at the problems you found in Tony's ‘cash-flow management in Reading 1. What specific solutions could you suggest? Look at the tips above to help you. ‘Complete the table to demonstrate your ideas and then use it topresent your ideas to another pair. Problems Solutions Stage 2 Prepare to present your ideas. Check any vocabulary that you need from Reading 1 and 2. What modals will you need to use? Stage 3 ‘Work with another pait. One pair plays the role of Tony and listens to the ideas of the other pair, asking the questions that they think Tony would ask. The other pair presents the ideas. Then change roles. After both pairs have presented their ideas, ‘compare your advice to Tony and choose the most effective tips. 11 ACCOUNTING 10511.3 Skills: eee Present facts and figures. . Describe changes and trends ‘= Use graphs in a presentation. Lookat the charts and graphs and answer the questions. Which one(s) shows proportions of total? Which ones) shows a development overtime? Some of them have a horizontal axis (axis) and a vertical axis (y-axis), What information does each axls show in these graphs? ‘World Internet Uses Distribution by Word Regions Asa 424% euope 23.6% North America 14.49% ‘Latin Ameria /Canbbean 10.49%, africa 40% middie ast 3.2% Oceania Austala 1.2% b 4s0m: 400% 350% 3.00% 250% 200% 1.0% 050%-p20% | 00% som Yel W2 Yd Wed WS Ye6 YET Ye ¥e9 YeIO Yr Mi bank ineret rate nays 796), 4539 | 236 Thavane a a casey ia oes 106 11 accountinc 2 Explain one of the graphs to a partner. 3 What are some reasons for using diagrams or other visual support when you are giving a presentation? You are going to hear the Area Sales Director of a company siving part ofa presentation about the company's sales to her department. Choose the correct option ad to answer the questions. 1 Asurvey showed that, after six months, the percentage of time sales people spent with customers this year ‘Increased from 108410 11%, stayed the same, bb increased by 10% d decreased by 1% 2 The sales target othe Sales Department for next years 210 milion exacty 10740000. approximately 10milion, 10,704,000, '3. Whats the targeted growth for next year? 2 55% b 15% © 55% 4 555% 1 Listen to the next part ofthe presentation and answer the questions. 1 What does the Sales Director thinkis the most important step for next year? 2 Why does she think that the sales force need to spend more time with their customers? 3 What increase in time spent with customers does the Sales Director expect if they don't follow her plans? 2 Listen again. Why does the Area Sales Director say'thatisa real key’ more slowly in this part ofthe presentation?eee r tthe beginning of the presentation, the Sales Director talks about the amount of time (asa percentage) the sales representatives spend with customers. 11 Based on the listening, which of the graphs below is correct? ‘Complete the sentences describing each graph. ayy —————_ | 4] i" "i B i ae Feb War Ape May Gun? ° lan Feb Mar "her "Way "an pate croph? ee eee ee thee re panes a iemrontareeral cocres fon peas 2 The following verbs can be used to describe changes and. trends. Which verb describes each graph? rise plummet fluctuate fall decrease level off jump) peak plunge recover increase soar Graph Graph 2 4 Graph 3 Graph 4 3 Complete the table with the rest ofthe verbs from exercise 2. ne Todown 4 Lookat all the verbs in thelist and answer the questions. 11 Which verbs are synonyms? 2 Which ones describe a sudden change? 3 Which ones can also be nouns? 4 Which ones are iregular? Write the past simple and past participle forms next to these verbs in the table in exercise 3 5 Complete the sentences with the correct form of a verb or noun from exercises 1-3. 1 Thedollar. 2 The average Japanese worker had a wage Inthe 12 months to Decernber, areal pay se of 303% 3. Unemployment boy an average of 11,200 over the past three months compared with an average fall of 23300 in the three months to March 4 The company’s share price fll bac, but has now. 5 By June, the index. 23% to $1,028, and finaly peaked at $1,109in December from 111.10 yen to 11157 yen lst Friday. of 4.296 6 Lookat the way prepositions are used to talk about changes inthe sentences above. 1 Which prepositions are used after verbs describing increase or decrease? What is the difference between them? 2 Which preposition is used after nouns? 3 Which preposition s used after the verb fo peak? Which other verb frorn the list above takes the same preposition? 7 Complete the sentences with the correct preposition. 1 Imports are projected to decrease. 596 n value 2. Mantel predicted that last years 38% unernployment rate wil ise 4396 this year and level of. 3 The cost of the project has risen unaffordable £32m, 4 There have been wage increases last wo years 4.9% next year. 24m —____an 386 foreach of the ort Stage Work in pairs. Look at the graph and work together to describe the information you see on the graph. 0: 10: 100: 0 60 ‘0 20 es Jan “Feb "ar" Ape’ May” sun Jul "Aug" sept Oct "Nov Dee salesin thousands of sports shoes Stage? Discuss what major trends you can see in the graph and why you think these trends may have happened. Stage 3 Work together to make a presentation highlighting the key Information and how you will try and solve the problem. Then sive your presentation to another group. 1 ACCOUNTING 107