7. ACCOUNTING I. 1. What does the profit and loss account of a company show?

What does a companys balance sheet show? 2. If you were the companys bankers, what would you look for when reading the aforementioned documents?

II.

Read the financial data produced by British Airways and published on the Internet for investors and mark the following statements T (true) or F (false) according to the information given. The profit and loss account and the balance sheet have each six corresponding sentences: 1. The total Group turnover increased slightly on the previous year. 2. Salaries paid to employees are part of the operating costs. 3. Interest payable on loans is deduced from the profit after tax. 4. British Airways sold off some of its assets in 1998. 5. All the profit is distributed to shareholders. 6. Earnings per share were lower than in the previous year. 7. The airlines fixed assets include aircraft. 8. The company had acquired new aircraft since the previous year. 9. The amount of current assets was greater than the amount of current liabilities. 10. Net current liabilities are calculated by deducting current liabilities from total assets. 11. British airways had issued more than a billion shares at the time of publishing these accounts. 12. British Airways had increased its reserves since the previous year.
SUMMARY GROUP PROFIT AND LOSS ACCOUNT Audited for the year to March 31, 1998
million Most of our revenue was earned from our main business, airline operations: Income from other activities earned: This gave us total Group turnover of: Our expenses comprised: Pay and other employee costs Depreciation of fixed assets: Selling costs: Other operational costs: In, total, therefore, our overall Group operating costs were: Deducting this from our Group turnover left a Group operating profit of: Other income and charges amounted to: The net profit on sale of fixed assets during the year was: Net interest payable amounted to: This produced a Group profit before tax of: Then we provided for tax totalling: This produced a Group profit after tax of: Profit or loss from subsidiaries in which we have a minority interest: This left a Group profit attributable to shareholders of: From this we allowed for dividends representing a total of : Finally, this left a profit retained in the business of: Earnings per share The standard measure of a companys profitability is calculated by dividing profit attributable to shareholders by the average number of shares. On this basis, 1998 7,881 761 8,642 2,211 551 1,217 4,159 8,138 504 80 164 (168) 580 (133) 447 13 460 (176) 284 44.7p 1997 7,608 751 8,359 2,248 506 1,187 3,872 7,813 546 256 20 (182) 640 (90) 550 3 553 (154) 399 55.7p

our earnings per share were:

SUMMARY GROUP BALANCE SHEET AUDITED for the year to March 31, 1998
million The Groups fixed assets comprised: Our fleet: Property: Computers, ground and other equipment: Investments in other businesses: Added together, these represented total fixed assets of: Our current assets, mainly money we were owed, our cash-in-hand and stock, represented: Most passengers book and pay for tickets in advance. this money and amounts owing to creditors that are payable within one year, totalled: Deducting this gave us net current liabilities of: Adding this to the total fixed assets left us with total assets less current liabilities of: In addition, we owed to creditors amounts due after more than a year including: Long-term borrowings of: We have also made provision for other liabilities and charges: We also had contributions from a minority shareholder in one of our subsidiaries of: Thus or assets less liabilities represented: The money invested in the British Group comprised: Our share capital, some 1,038.9 million 25p shares: Our reserves: 1998 7,227 1,181 259 388 9,055 2,245 (2,821) (576) 8,479 (4,978) (180) 3,321 260 3,061 1997 6,337 988 263 684 8,272 2,164 (3,160) (996) 7,276 (4,034) (284) 26 2,984 251 2,733

from www.british-airways.com

III. Match the terms below with their definitions: 1. turnover a. amount deducted each year from the profits to allow for the fact that assets (e.g. equipment) lose their value as they get older 2. operating costs b. total sales during a trading period 3. operating profit c. people the company owes money to, e.g. suppliers 4. depreciation d. past profits not paid out as dividends but retained in the business 5. fixed assets e. short-term assets used in operations, e.g. cash, items held in stock 6. dividend f. money which shareholders have put into the business 7. current assets g. statement produced by an organization at the end of the accounting period, in which the financial situation of the organization is shown 8. creditors h. expenses of running a business including salaries, rent etc., but not including the direct costs of manufacturing 9. current liabilities e. result of deducting the operating expenses from turnover 10. share capital f. part of a companys profits paid to shareholders 11. reserves g. debts that must be paid within one year 12. balance sheet h. long-term assets owned by the company, e.g. buildings, machines The terms below were not used in the British Airways financial data, but are often found in balance sheets. Do you know what they mean?

1. debtors 2. long-term loans IV. 1. 2. 3. 4. 5. 6. 7. 8. V. Which word or phrase from the documents above fits each of these definitions? a standard measure of how profitable the company is; the total amount of profit which is given out to the shareholders in dividends; money which the company has available to spend immediately; goods and supplies which the company has bought but not yet used; money which is set aside for possible future expenses; a document which shows how much a company makes or loses over a given period; the surplus remaining after total costs are deducted from total revenue and represents the basis on which tax is computed and dividend is paid; ability of a firm to generate net income on a consistent basis. It is often measured by price to earnings ratio. Fill in the gaps with suitable words from the list given: statements accounting

Resources tax accountancy certified economics overheads public allocation chartered accountants

Accounting is a branch of 1 whose purpose is to supply information in financial terms on the .2. of the organization, on how past managerial decisions have influenced these resources and consequently it can be a useful instrument for decision-making concerning the .3.. of resources for the future. 4. is the name of the profession and is used only in the UK. 5are professionals in the field of 6.. . they usually belong to specialized bodies. Thus, ..7accountants are members of the Association of Certified Accountants (U.K.). They are recognized by the Department of Trade as qualified to handle the accounts of limited companies. .8.accountants are members of one of the Institutes of Chartered Accountants (in England, Wales, Scotland and Ireland). In the USA, the correspondent is certified .9accountant, a member of the American Institute of Certified Public Accountants. Accountants produce financial 10.., draw up flow forecasts, prepare .11.returns and calculate production costs as well as 12.. . VI. 1. 2. 3. 4. 5. 6. 7. Use the word in capital letters to form a word which fits in the blank space: Wages are earnings which are calculated and paid . WEEK The contains details of all the employees who work for the company. PAY The employer makes a for tax from the workers gross salary. DEDUCT They receive an increase each year as they are paid an .salary. INCREMENT Its not always possible to calculate product costs . ACCURATE Management may want to expand the sales of more products. PROFIT Operating costing is the way of calculating the cost of the .of services. PROVIDE

8. The disposal of waste might incur .. . EXPEND 9. Some costs may be by the sale of scrap. RECOVER 10. ..may be possible on some products which fail quality control. RECTIFY VII. Choose the correct answer: 1. is the money a person has to pay to the government, such as income tax. a. value-added tax; b. indirect tax; c. direct tax; d. government tax. 2. A profit .. is the difference between the amount of money that a company receives for a product and the amount which it has spent on it. a. plus; b. margin; c. interest; d. gain. 3. Petty .. is a small amount of money kept in the company's office for buying cheap items. a. money; b. dollar; c. coins; d. cash. 4. .. accounting refers of changing or destroying records to obtain money. a. wrong; b. bad; c. authorized; d. dirty. 5. A account (US checking account) is a bank account which usually earns low interest and to which you have quick access. a. black; b. profit; c. current; d. credit. 6. Creative .. is finding ways of explaining how money has been spent while hiding what has really happened to it. a. bookmaking; b. accounting; c. audit; d. booking. 7. In a company, the forecasts useful for future decision-making are the province of accounting. a. management; b. gestion; c. credit; d. branch. 8. Capital . are profits made by selling buildings or machines. a. losses; b. gains; c. profits; d. wins. 9. Capital . are the buildings and machines owned by a business. a. shares; b. goods; c. expenditure; d. assets. 10. The collective word for all the company's property is called . . a. shares; b. liabilities; c. assets; d. goods.