| Lead-in: What information is, in your opinion, included in companies annual reports? Key words and phrases 1. annual report 2. profit and loss account 3. income Nationalment 4. income and expenditure 5. turnover 6. costs 7. overheads 8. government taxation 9. balance sheet 8. assets and liabilities 10. accounts receivable , 11. accounts payable , 12. double-entry bookkeeping 13. share premium (paid-in-surplus) ( ) 14. retained profit 15. cash flow i 16. depreciation , |
In their annual reports companies usually include three financial Nationalments.
The profit and loss account or income Nationalment shows the revenue or earnings or income and expenditure. It usually gives figures for total sales or turnover, and costs and overheads. The first figure should obviously be higher than the second, i.e. there should be a profit. Part of the profit goes to the Government in taxation, part is usually distributed to shareholders (stockholders) as a dividend, and part is retained by the company.
The balance sheet shows a companys financial situation on a particular date, generally the last days of the financial year. It lists the companys assets, its liabilities, and shareholders funds. Assets include debtors or accounts receivable, liabilities include creditors or accounts payable. Negative items on financial Nationalments, such as taxation, creditors, and dividends paid, are usually enclosed in brackets.
In accordance with the principle of double-entry bookkeeping, the basic accounting equation is Assets = Liabilities + Owners (or Shareholders) Equity. This can be rewritten as Assets Liabilities = Owners Equity or Net Assets. This includes share capital, share premium (GB) or paid-in-surplus (US) (selling shares at above their nominal value), and the companys reserves, including the years retained profits.
The third financial Nationalment, source and application of funds Nationalment, or the Nationalment of changesin financial position, shows the flow of cash in and out of the business between balance sheet dates. Sources of funds include trading profits, depreciation provisions, and sales of assets, borrowing and the issuing of shares. Applications of these funds include purchases of fixed or financial assets, payment of dividends, repayment of loans, and in a bad year trading losses.
Ø Comprehension:
1. What does a profit and loss account show?
2. Where does part of the profit go?
3. What is listed in the companys balance sheet?
4. How do you read the basic accounting equation?
5. What items are included in the Nationalment of changes in financial position?
Ø Summarizing:
Complete the following sentences to summarize the text above:
1. As a rule, annual reports consist of .
2. The profit and loss account gives figures for .
3. The first figure in the profit and loss account should be .
4. The balance sheet lists the companys assets .
5. Negative items on financial Nationalments are enclosed .
6. The basic accounting equation is read in the following way .
7. Source and application of funds Nationalment shows .
Ø Viewpoint:
Do you think there must be more financial Nationalments in annual reports?
