financial english 2011 01
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Financial EnglishStephan Langdon, MBA, M. Ed.
Accounting
Audio One
• Balance Sheet• Asset (tangible,
intangible)• Liability• liable• Make a Loss, Take a
loss• Profit and loss
statement• Financial statements
• Video Vocab
• GAAP• calculate• Cash flow• Operating, non
operating
• Video Vocab 2
Put correct words in blanks: accounts data-entry errors.expense account keeping track likelihood record-keepingtransaction transfer owe
• Double-entry accounting is a method of _____ that lets you track just where your money comes from and where it goes.
• Using double-entry means that money is never gained nor lost---it is always _____ from somewhere (a source account) to somewhere else (a destination account). This transfer is known as a _____, and each transaction requires at least two _____.
• An account in GnuCash is a record for _____ of what you own, _____, spend or receive. For example, if you pay a phone bill with a check, money transfers from checking to the phone company. This is a transaction transferring money from a checking account to a phone _____. You probably already think of your checking account as a bank "account," but your expenses (such as phone bill) are also "accounts".
• This double-entry concept has been around since the 13th century, and its purpose has always been to reduce the _____ of _____.
• Double-entry accounting is a method of record-keeping that lets you track just where your money comes from and where it goes.
• Using double-entry means that money is never gained nor lost---it is always transferred from somewhere (a source account) to somewhere else (a destination account). This transfer is known as a transaction, and each transaction requires at least two accounts.
• An account in GnuCash is a record for keeping track of what you own, owe, spend or receive. For example, if you pay a phone bill with a check, money transfers from checking to the phone company. In GnuCash, this is a transaction transferring money from a checking account to a phone expense account. You probably already think of your checking account as a bank "account," but your expenses (such as phone bill) are also "accounts".
• This double-entry concept has been around since the 13th century, and its purpose has always been to reduce the likelihood of data-entry errors.
Accounting Cycle• Invoice• Entry• Debit• Credit• Compound Entry
Nouns• Post• Debit• Credit• Bill• Revenue
Verbs• Make an entry• Post up to / post to• Double Entry Method• Historical Cost Principle• In the real world
Phrases
Accounting CycleIdentify
the transaction
• an original source document (invoice, receipt , cancelled check, time card, deposit slip, purchase order) which provides:
• date • amount • description (account or business purpose) • name and address of other party (if practical)
Analyze
the transaction
• determine which accounts are affected, how (increase or decrease), and how much
Accounting CycleMak
e Journal entries
• record the transaction in the journal as both a debit and a credit
• journals are kept in chronological order • journals may include sales journal, purchases
journal, cash receipts journal, cash payments journal, and the general journal
Post to
ledger
• transfer the journal entries to ledger accounts • ledger is kept by account • ledger accounts may be T-account form or include
balances
Accounting Cycle Video Accounting Equation
• What is assumed? • What is ALO• What are the types
of Assets• What must the
sides be?
• Video
Finance and Accounts
Finance and Accounts
Key Terms
Costs
• not influenced by the amount produced but can change in the long run e.g., insurance costs, administration, rent, some types of labour costs (salaries), some types of energy costs, equipment and machinery, buildings, advertising and promotion costs
Fixed (Indirect/Overheads) –
• vary directly with the amount produced, e.g., raw material costs, some direct labour costs, some direct energy costs
Variable (Direct)
• where costs not directly attributable to either of the above, for example, some types of energy and labour costs
Semi-fixed
Costs
• Fixed Costs (FC)+ Variable Costs (VC)
Total Costs (TC)
• TC/Output (Q)• AC (unit costs) show the amount it costs
to produce one unit of output on average
Average Costs
• the cost of producing one extra or one fewer units of production
• MC = TCn – TCn-1
Marginal Costs (MC)
Revenue
• Total Revenue – also known as turnover, sales revenue or ‘sales’ = Price x Quantity Sold
• TR = P x Q• Price – may be a variety of different prices
for different products in the portfolio• Quantity – could be global sales
Profit
• Profit (Π) = TR – TC• Normal Profit – the minimum amount
required to keep a business in a particular line of production
• Abnormal/Supernormal Profit – the amount over and above the amount needed to keep a business in its current line of production
Break Even
Break Even• Occurs where Total Costs = Total Revenue• Start-up costs – fixed costs• Running costs – variable costs• Revenue stream depends on price charged• ‘Low’ price – need to sell more to break-even• ‘High’ price – lower level of sales required before breaking
even
Fixed Costs• Break-Even Point = --------------- Contribution
Purpose of Accounts
Profit and Loss Account - Flow
Profit and Loss Account• Shows the flow of sales and costs over a period• Shows the level of profit or loss made• Shows what has been done
with the profit or loss
Profit and Loss AccountConsolidated Profit & Loss Account for the year ended 2003 2002 2001
Weeks 52 52 52
Currency £ million £ million £ million
Turnover 7688.0 8340.0 9278.0
Cost of sales -7263.0 -8291.0 -8757.0
Gross Profit 425.0 49.0 521.0
Operating Expenses -130.0 -137.0 -77.0
Operating Profit 295.0 -88.0 444.0
Other costs/income 95.0 166.0 -68.0
Profit before interest and taxation 390.0 78.0 376.0
Net interest receivable (payable) -255.0 -278.0 -226.0
Profit on ordinary activities before taxation 135.0 -200.0 150.0
Tax on profit on ordinary activities -50.0 -71.0 -69.0
Profit on ordinary activities after taxation 85.0 -129.0 81.0
Equity minority interests -13.0 -13.0 -14.0
Profit for the financial period 72.0 -142.0 67.0
Dividends 0.0 -193.0
Retained profit 72.0 -142.0 -126.0
Profit and Loss Account for British Airways plcSource: http://www.bized.ac.uk/cgi-bin/ratios/ratiodata.pl
Turnover – the revenue earned over the year
Gross Profit = turnover – cost of sales
Operating Expenses – the fixed costs
Operating or Net Profit = Gross profit – operating costs
Subtract other costs and expenses incurred to get profit before tax
Final section called ‘appropriation account’ – shows where the profit/loss is going
Dividend – the share of the profit returned to shareholders
Retained Profit – the amount kept back for future investment, etc.
Balance Sheet - Snapshot
Balance Sheet
• A snapshot of the firm’s position at a point in time
• Shows what a company owns (assets) and what it owes (liabilities)
• Balance Sheet shows what assets a company has (use of funds) and where the money came from to acquire those assets (source of funds)
Balance Sheet – Part 1
Consolidated Balance Sheet for the year ended 2003 2002 2001
Weeks 52 52 52
Currency £ million £ million £ million
Fixed assets
Intangible Assets 164.0 105.0 60.0
Tangible Assets 9487.0 10509.0 10662.0
Investments 524.0 489.0 426.0
Total Fixed Assets 10175.0 11103.0 11148.0
Current assets
Stock 87.0 109.0 170.0
Debtors due within one year 986.0 1231.0 1444.0
Short-term investments 1430.0 1155.0 865.0
Cash at bank and in hand 222.0 64.0 71.0
Total Current Assets 2725.0 2559.0 2550.0
Fixed Assets – assets not used up in production or lasting longer than one year – equipment, buildings, machinery, etc.
Fixed assets can be tangible – i.e. physical items or intangible – i.e. brand name, goodwill.
Current Assets: assets that are used up during production and which are likely to yield cash in the coming year – for example, stock will be sold and debtors owing the business money will pay up!
Balance Sheet – Part 2
Creditors: Amounts falling due within one year -2904.0 -3201.0 -3308.0
Net Current Assets (liabilities) -179.0 -642.0 -758.0
Total assets less current liabilities 9996.0 10461.0 10390.0
Creditors: Amounts falling due after more than one year -6553.0 -7097.0 -6901.0
Provisions for liabilities and charges -1169.0 -1157.0 -1164.0
Net assets 2274.0 2207.0 2325.0
Capital and reserves
Called-up share capital 271.0 271.0 271.0
Share premium 788.0 788.0 788.0
Other reserves 270.0 270.0 290.0
Profit and loss account 729.0 687.0 772.0
Equit shareholders' funds 2058.0 2016.0 2121.0
Minority interests 216.0 191.0 204.0
Total capital employed 2274.0 2207.0 2325.0
And to those who are longer term creditors – loans, mortgage on property etc
This leaves us with ‘Net Assets’
It can ce from share capital and from retained profit (profit and loss account)
The total capital employed must be the same as the sum of the net assets – hence the term ‘balance’ sheet!
Balance Sheet
• A guide to the structure of the assets of a company
• A guide to the level of gearing – the ratio of loan to share capital
• Gives a guide as to the degree of working capital – the amount the company has to be able to pay its everyday debts (current assets – current liabilities)
• Shows the total value of a firm at that moment in time
WritingFragments
Fragments• Rule #1: Fragments are illegal
• Rule #2: Some place need
• Rule #3: In case of discrepancy, ignore Rule #1
05/09/08
Fragments• Sentence—a complete unit of thought
containing at least one independent clause that begins with a capital letter and ends with a period, question mark, or exclamation point
• Independent Clause—a cluster of words containing a subject and a predicate or verb
• Fragment—a set of words punctuated as a sentence, but lacking one or more of the elements usually considered necessary to a sentence
05/09/08
There are two basic types
1. The word combination which is missing the subject, verb, or both
2. The dependent clause which cannot “stand” alone
The dependent clause is alone, confused, and clinging to something—the independent clause.
Subject
Verb
Type #1 Fragments
• No-Subject FragmentExample—Is tired of asking questions.
• No-Verb FragmentExample—My sister frequently working late at night.
• No-Subject, No-Verb Fragment
Example—So kind of you.
05/09/08
Type #2 Fragments
• A dependent or subordinate clause does NOT make a complete statement and cannot “stand” alone. There are basically three types of dependent clauses—adverb, adjective, and noun.
05/09/08
Type #2 Fragments
• Adverb Dependent Clause—serves the function of an adverb, begins with a subordinating conjunction [after, although, as, as if, as long as, as soon as, as though, because, now, if, in order that, provided (that), since, so (that), than, though, till, unless, until, when, whenever, where, wherever, while]• Example of an Adverb Dependent Clause: When he is
here, I feel comfortable.• Example of an Adverb-Clause Fragment: Since they
are going.05/09/08
Type #2 Fragments (cont.)
• Adjective Dependent Clause—serves the function of an adjective, begins with a relative pronoun (who, whoever, whom, whomever, whose, that, what, which)
• Example of an Adjective Dependent Clause: This is the house that I want to buy.• Example of an Adjective-Clause Fragment: Which I
cannot buy.
05/09/08
Type #2 Fragments (cont.)
• Noun Dependent Clause—serves the function of a noun
• Example of a Noun Dependent Clause: That I want to go is a secret.• Example of a Noun-Clause Fragment: Whomever I see.
05/09/08
Type #2 Fragments (cont.)
• Remember that a dependent clause has a subject and a verb but that the dependent clause cannot “stand” alone.
• Seemingly, most fragments in college papers are of the dependent-clause type.
05/09/08
Determining Fragments
When determining whether a group of words is a sentence or a fragment, ask the following questions:
• Is there a subject?• Is there a complete verb?• Is there an independent clause?
• If any answer is NO, then the group of words is a fragment.
• If all answers are YES, then the group of words is a sentence.
05/09/08
Business Letter
6 characteristics that all business letters share:1. Starting Point: reason for contact2. Purpose: discuss, announce, clarify, confirm3. Form: semi-block or block, memo etc…4. Audience: who are you speaking to?5. Voice: direct and sincere6. Point of View: person to person (I) general or
group discussion (he she they)
Form of the Business LetterA letter must be professional and look professional.
The two formats for writing business letters are the following:
• Semi-Block• Full Block
Additional items to keep in mind when setting up your letter:
Use margins left and right, top and bottom, from 1 to 1.5inches.
Center the letter vertically, from top to bottom.
The 7 parts of a business letter
1. Heading2. Inside address3. Salutation 4. Body5. Complimentary closing6. Signature7. Enclosure: when needed
The Heading
The heading gives the writer’s complete address with the date of application.
This would be your address!
The Inside AddressGives the reader’s name and address.
If you’re not sure who to address or how to spell a person’s name, you could call the company for the information.
If the person’s title is a single word, place it after the name and a comma. A longer title goes on a separate line.
The SalutationBegins with Dear and ends with a colon, NOT a
comma!Do not guess to whom you should address your
letter to!Use Mr. or MS. Plus the person’s last name, unless
you are well acquainted.If you can’t get the person’s name, replace the
salutation with Dear or Attention: or an appropriate title for the reader: Sales Manager, To Whom it May Concern: etc…NEVER use Dear Sir or Gentlemen.
The Body The body should consist of single-spaced
paragraphs with double-spacing between paragraphs.
DO NOT INDENT THE PARAGRAPHS!
Complimentary Closing For the closing use Sincerely, Yours truly, Thank
you…followed by a comma.
Capitalize only the first word.
SignatureThe signature includes the writer’s
handwritten name plus the typed name.
If a document (brochure, form, copy, etc..) is enclosed with the letter, the word Enclosure or Encl. appears below the initials.
If you send more than one copy of the letter out, type the letters cc: plus the person’s or department’s name beneath the enclosure line.
Spacing within a letterAfter the Heading: 4 spacesAfter the Inside Add.: 2 spacesAfter the Salutation: 2 spacesBetween the paragraphs: 1 space EXCEPT for the
final paragraph where you skip 2 spaces (before closing)
After Closing (between closing and sign.) skip 4 spaces.