1.

Accounting and reporting for tangible non-current assets

Fixed assets (FA), also known as Property, Plant and Equipment, are
tangible assets held by an entity for the production or supply of goods and
services, for rentals to others, or for administrative purposes. Assets that
are held for resale must be accounted for as inventory rather than fixed
asset.
FA are normally expected to be used for more than one accounting period,
which is why they are part of Non-Current Assets of the entity. Economic
benefits from FA are therefore derived in the long term. FA are generally
not considered to be a liquid form of assets unlike current assets.
Examples of FA: land, furniture and fixtures, machines and vehicles.
Tangible fixed assets have a physical substance unlike intangible ones,
which have no physical existence (copyright/trademarks)
The basic criteria for the recognition of fixed assets in the financial
statement of an entity:
• the inflow of economic benefits is probable
• the cost/value can be measured reliably
E.g. Fixed Asset purchase (Delivery truck). Debit 12 000$ (Fixed assets).
Credit 12 000$ (Cash).

2.Accounting as the language of business

Accounting is often called the language of business because it deals with
interpreting and communicating information about a company's past
activities and forecasting future operations.
Accounting is gathering, classifying and recording of business financial
transactions. This process is necessary to keep the business running
smoothly. Accounting data is used to produce financial statements. They
tell the story of how well the business is doing in terms of profit or loss;
communicate the financial information that is necessary to make sound
business decisions.
The financial data can be analyzed to determine the status of the
company’s ability to pay its short- and long-term debts. The information
can be analyzed to determine the company’s liquidity, solvency and debt
levels. Accounting data can be used to determine whether a company is
making efficient use of its resources. The data can be analyzed and
manipulated to determine whether a company should make or buy parts or
raw materials.
 3.Accounting cycle and the role of closing entries in the preparation
of financial statements
Accounting cycle is a collective process of recording and processing the
accounting events of a company. The series of steps begin when a
transaction occurs and end with its inclusion in the financial statements.
Closing entries are journal entries made at the end of an accounting cycle
to set the balance of temporary accounts to zero to begin the next
accounting period.
The temporary accounts that are closed are revenue, expense, and drawing
accounts. The assets, liabilities, and owner's equity accounts are not
closed. They are permanent account and their ending balances are the
beginning balances for the next accounting period. When the revenue,
expense, and drawing accounts (the temporary accounts) are closed, their
balance returns to zero in preparation for the new accounting period.
Another reason closing entries are prepared is so the company's retained
earnings account will show an increase from revenues from the prior year
and a decrease from dividends and expenses.

4.Accounting for contributing capital

Contributed capital is more commonly known as paid in capital. It can be
a separate account within the stockholders' equity section of the balance
sheet, or it can be split between an additional paid in capital account and a
common stock account, which are also within the stockholders' equity
section of the balance sheet.
Contributed capital is an element of the total amount of equity recorded by
a company. When an investor pays a company for shares of its stock, the
typical journal entry is for the company to debit the cash account for the
amount of cash received and to credit the contributed capital account.
There are other possible transactions involving increases in contributed
capital, of which the following are the most common:
• Receive cash for stock. Debit the cash account and credit the
contributed capital account.
• Receive fixed assets for stock. Debit the relevant fixed asset account
and credit the contributed capital account.
• Reduce a liability for stock. Debit the relevant liability account and
credit the contributed capital account.
 5.Accounting for current liabilities
Current liabilities are cash and other assets that are reasonably expected to
be converted to cash, sold, or consumed within one year or within the
normal operating cycle of the business, whichever is longer.
Current liabilities are typically paid from current assets or by incurring
new short-term liabilities, show up on the balance sheet. E.g.: Notes
payable, Accounts payable, Current portion of long-term debt, Salaries
and wages payable, Taxes payable, Customer advances (unearned
revenues).
The amount of current liabilities is used to determine a company's
working capital (current assets minus current liabilities) and the
company's current ratio (current assets / current liabilities).

6.Accounting for Debtors. Bad and Doubtful Debts

A debtor is an entity or a person that owes money to a creditor. The
amounts owed by debtors are recorded in the accounts receivable. But
A/R are not always collected in full: customers become bankrupt, the debt
becomes time-barred, etc.
A bad debt is an A/R that has been identified as being uncollectible. Bad
debts are no longer assets and must be written off (i.e. removed from
A/R):
• Direct write off method: if there’s no reserve set up for bad debt, you
credit the A/R and debit the bad debt expense account
• Allowance method for doubtful accounts: you credit A/R account and
debit the allowance for doubtful accounts
A doubtful debt is an A/R that might become a bad debt in the future. If a
company has doubtful debts, it creates a contra account called the
allowance for doubtful accounts. The credit part of this account includes a
reserve equal to the value of doubtful debts in a given period. The debit in
the transaction is to the bad debt expense. When actual bad debts are
identified, they are written off by debiting the allowance for doubtful
accounts and crediting the A/R.
 7.Accounting for different types of discounts
Sales discounts are reductions in the price of a product offered by the
seller in exchange for early payment by the buyer. They are intended to
increase the seller’s liquidity by reducing the amounts tied up in A/R.
Sales discount terms: 2/10, n/30. It means that amount may be paid within
10 days of the invoice date with a 2% discount OR wait up to 30 days and
pay the full amount
Sales discounts are recorded as a debit to the sales discounts account and a
credit to the A/R account. The sales discounts account appears in the
income statement and is a contra revenue account.
Trade discounts are reductions off list or catalog prices
• Offered by manufacturers and wholesalers to retailers
• Usually 30% or more
Trade discount terms:
• n/10 – amount is due 10 days after the invoice date
• n/10 eom – amount is due 10 days after the end of the month in
which the invoice is dated
Trade discounts are not recorded in the accounting records. They are
subtracted before transaction is recorded (e.g. goods with list prices
totaling $100 are sold at 30% trade discount => transaction is recorded at
the net amount of $70).
8.Accounting for expenses and accruals
Accrued expense is expense, which has been incurred but not yet paid. It
must be recognized in the accounting period in which it occurs rather than
in the following period in which it will be paid.
The accounting entry to record accrued expense will therefore be as
follows:
Debit=Expense (Income Statement);Credit=Expense Payable (Balance S.)
Examples of Accrued Expense Journal Entries:
• Office supplies received and there is no supplier invoice as of month-
end: Debit to office supplies expense, credit to accrued expenses.
• Employee hours worked but not paid as of month-end: Debit to wages
expense, credit to accrued expenses.
• Benefit liability incurred and there is no supplier invoice as of month-
end: Debit to employee benefits expense, credit to accrued expenses.
• Income taxes are accrued based on income earned. Debit to income tax
expense, credit to accrued expenses.
 9.Accounting for expenses and
A prepaid expense is an expenditure that is paid for in one accounting
period, but for which the underlying asset will not be entirely consumed
until a future period. Prepaid expense must be presented in the subsequent
accounting periods in which the services in respect of the prepaid expense
have been performed. When the asset is eventually consumed, it is
charged to expense.
An example of a prepaid expense is insurance, which is frequently paid in
advance for multiple future periods; an entity initially records this
expenditure as a prepaid expense, and then charges it to expense over the
usage period. E.g. A company pays $60,000 in advance for directors and
officers liability insurance for the upcoming year. The journal entry is:
Debit Prepaid expense $60,000
Credit Accounts Payable $60,000
At the end of each period, the company amortizes the prepaid expenses
account with the following entry, which charges the entire amount of the
prepaid insurance to expense by the end of the year:
Debit Insurance expense $5,000
Credit Prepaid expenses $5,000

10. Accounting for Goodwill / Деловая репутация(Гудвилл)

Goodwill is a type of intangible asset that arises when a company acquires
another company entirely. For example, consider a firm that acquires
another firm for $1,000,000. If the net identifiable assets of the acquired
firm total $800,000, then the amount of goodwill realized is $200,000. So,
the firm would debit Goodwill for $200,000, debit the acquired asset
accounts for $800,000, and credit Cash for $1,000,000.

Goodwill is an indefinite asset account and is recorded on the balance

sheet. Goodwill is neither depreciated nor amortized; instead, it is
annually tested for impairment. Each year, the goodwill balance should be
compared to its estimated market value. If the book value is too low, no
adjustment is permitted. If the book value is too high, the balance must be
"impaired" by marking it down to fair value. If the goodwill account needs
to be impaired, an adjusting entry is needed in the general journal: debit
Loss on Impairment and credit Goodwill for the necessary amount.
 11. Accounting for income. Accrued and deferred income
Accrued - Income that is earned by company by providing a service or
selling a product, but has yet to be received. E.g. assume that a company
is expected to complete services for another company once per month for
6 consecutive months, but that under the terms of the contract, it will not
receive monetary payment for these services until the end of the 6-month
period. The company performing the services can accrue a %-age of the
income earned after each month, even though physical payment will not
take place until after the 6-month period.
Deferred income represents payments received for goods and services that
were not actually sold or delivered in the same period. E.g. employers will
usually pay their sales representatives commission payments after they
have actually earned them. E.g, sales that were made in one month may
not be paid out until the following month. The company would record the
owed commission amount as a liability and then reconcile the amount
from its books once it has been paid.

12. Accounting for Intangible assets / Нематериальные активы

Intangible asset is the one that is not physical in nature. Corporate
intellectual property (items such as patents, trademarks, copyrights,
business methodologies), goodwill and brand recognition are all common
intangible assets. When the purchase price of a business is more than the
fair market value of its physical assets, the business must have intangible
assets.
For example, Innovative Gadgets Ltd. patented one of their products at a
cost of $100,000. The patent is enforceable for 10 years, so the legal life is
10 years. However, the company expects to produce the patented product
for only 5 years and expects to replace it with an advanced version at the
end of 5 years. The company uses straight line method of amortization.
The company is required to amortize the patent over 5 years which is the
shorter of legal life and economic life and hence per year amortization
would be $20,000 ($100,000/5).
Although intangible assets with unlimited useful life are not amortized,
they are periodically tested for impairment.
 13. Accounting for intangible assets, including research and
development costs and goodwill / Учет нематериальных
активов, включая расходы на НИОКР и гудвил
[IAS 38 Intangible Assets] Intangible assets meeting the relevant
recognition criteria are initially measured at cost, subsequently measured
at cost or using the revaluation model, and amortized on a systematic basis
over their useful lives. IAS 38 requires an entity to recognize an intangible
asset, whether purchased or self-created (at cost) if:
• it is probable that the future economic benefits that are attributable to
the asset will flow to the entity
• the cost of the asset can be measured reliably.
If an intangible item does not meet both the definition of and the criteria
for recognition as an intangible asset, IAS 38 requires the expenditure on
this item to be recognized as an expense when it is incurred. An
expenditure on an intangible item that does not meet both the definition of
and recognition criteria for an intangible asset should form part of the
amount attributed to the goodwill recognized at the acquisition date.

14. Accounting for irrecoverable and doubtful debts / Учёт

безнадёжной задолженности
An entity may not be able to recover its balances outstanding in respect of
certain receivables. In accountancy we refer to such receivables as
Irrecoverable Debts or Bad Debts. Every time an entity realizes that it
unlikely to recover its debt from a receivable, it must 'write off' the bad
debt.
Accounting entry required to write off a bad debt is as follows: Debit -
Bad Debt Expense; Credit – Receivable. Example: ABC LTD sells goods
to DEF LTD for $500 on credit. DEF LTD is being liquidated and
therefore the prospects of recovering its dues are very low. ABC LTD
should write off the receivable from DEF LTD in view of the
circumstances. The double entry will be recorded as follows: Debit - Bad
Debt Expense 500 Credit – Receivable (AR) 500 Bad Debt Recovered
Occasionally, a bad debt previously written off may subsequently settle its
debt in full or in part. In such case, it will be necessary to cancel the effect
of bad debt expense previously recognized up to the amount settlement.
 15. Accounting for long-term liabilities
Long-term liabilities (LTL) are debts of the business that fall due more
than one year in the future or beyond the normal operating cycle, or that
are to be paid out of noncurrent assets. E.g. mortgages payable, long-term
notes, bonds payable, employee pension obligations, long-term lease
liabilities.
LTLs are a way of indicating that something has to be paid off in a time
period longer than one year. The Long-term liabilities, in accounting, are
listed on the right wing of the balance sheet representing the source of
funds.
Generally, the following LTLs are found on a company’s balance sheet:
• Financing Liabilities - notes payable (debt issued to a single investor),
bonds payable (debt issued to general public or investors’ group), and
convertible bonds
• Operating Liabilities - capital lease obligations, postretirement benefit
obligations other expenses incurred (including deferred income tax or
contingent obligations)
16. Accounting for Partnership / Учет товариществ
A partnership is a business run by two or more persons who agree to
contribute assets to the business and share in the profits and losses. E.g.:
the A&B Partnership. A contributes Cash and Inventory worth $50,000
each and A/P with a total balance of $20,000. B contributes a Building
and Equipment worth $1,000,000 and with a $400,000 mortgage. The
building and equipment had a tax basis of $600,000 and are worth 0% and
20%, respectively.
Cash 50,000 Cash 75,000
Inventory 50,000 At the end of the year the A&B
A/P 20,000 Partnership had earned a profit of
Partner A, Capital 80,000 $100,000 which the partners agreed to
Building 800,000 split evenly and the drawing accounts
Equipment 200,000 were closed.
Mortgage Payable 400,000 Income Summary 100,000
Partner B, Capital 600,000 Partner A, Capital 50,000
During the year Partner A withdraws Partner B, Capital 50,000
$25,000 in cash and Partner B Partner A, Capital 25,000
withdraws $50,000 in cash. Partner B, Capital 50,000
Partner A, Drawing 25,000 Partner A, Drawing 25,000
Partner B, Drawing 50,000 Partner B, Drawing 50,00
17.Accounting information and its uses
Accounting information - collection, storage and processing of financial
and accounting data that is used by decision makers. Accounting
information helps users to make better financial decisions. Users of
financial information may be both internal and external to the
organization.
Internal: management (for analyzing the organization's performance and
position); employees (for assessing company's profitability); owners (for
analyzing profitability of their investment). Accounting information is
presented to internal users usually in the form of management accounts,
budgets, forecasts and financial statements.
External users: creditors (for determining the credit worthiness of the
organization); tax authorities; investors (for analyzing the feasibility of
investing in the company); customers; Regulatory Authorities (for
ensuring that the company's disclosure of accounting information is in
accordance with the rules and regulations). External users are
communicated accounting information usually in the form of financial
statements.

18.Accounting Policies / Учетная политика

Accounting policies are the specific principles, bases, conventions, rules
and practices applied by an entity in preparing and presenting financial
statements. (IAS 8)
Where an IFRS specifically applies to a transaction, event or condition,
the accounting policy applied to that item should be determined by
reference to that standard. When no standard applies specifically to a
transaction, event or condition, management should use its judgment to
develop a policy that results in information that is relevant to the
economic decision-making needs of users and reliable, such that the
financial statements faithfully represent the financial position,
performance and cash flows of the entity, reflect the economic substance
of transactions, events and conditions, are free from bias, prudent, and
complete in all material respects.
19. Accruals basis and cash accounting: uses and differences
Under the cash basis of accounting Revenues are reported on the income
statement in the period in which the cash is received from customers.
Expenses are reported on the income statement when the cash is paid out.
Under the accrual basis of accounting Revenues are reported on the
income statement when they are earned—which often occurs before the
cash is received from the customers. Expenses are reported on the
income statement in the period when they occur or when they expire—
which is often in a period different from when the payment is made.
The accrual basis of accounting provides a better picture of a company's
profits during an accounting period and a better picture of a company's
financial position at a moment or point in time. The accrual basis of
accounting is required because of the matching principle.
Example: You purchase a new laser printer on credit in May and pay
$1,000 for it in July. Using the cash method, you would record a $1,000
payment for the month of July, under the accrual method, you would
record the $1,000 payment in May.
20. Adjusting Entries / корректирующая проводка
Adjusting Entries never affect the Cash account. Therefore, they never
affect cash flows in the current period. They do provide information
about future cash flows. Accounts Receivable indicates expected future
cash inflows. Accounts Payable indicates expected future cash outflows.
Considerable judgment underlies the application of adjusting entries.
Therefore, the potential for abuse exists; Misuse can result in misleading
performance measures. Adjusting Entries are used to apply accrual
accounting to transactions that span more than 1 accounting period.
Adjusting entries:
• Include at least one balance sheet account
• Include at least one income statement account
• Never include the Cash account.
Adjusting entries are required when:
• Recorded costs are allocated between two or more accounting
periods
• Expenses are incurred but not yet recorded
• Recorded unearned revenues are allocated between two or more
accounting periods
• Revenues are earned but not yet recorded.
 21. Allowance for receivables and irrecoverable debts / Резерв по
дебиторской задолженности и безнадежной задолженности
Accounts Receivables (AR) are short-term financial assets that arise from
sales on credit to customers. Irrecoverable (bad) debts are accounts owed
by customers who will not or cannot pay.
The Allowance Method matches bad debt losses against the sales they
help produce
• At the time of sale, management cannot identify which customers
will not pay
• To observe the matching rule, losses from uncollectible accounts
must be estimated
• The estimate becomes an expense in the fiscal year in which the
sales are made
Uncollectible Accounts Expense appears on the income statement as an
operating expense.
Allowance for Uncollectible Accounts appears on the balance sheet as a
contra-asset account that is deducted from AR => AR may be shown
“net,” with the amount of the Allowance for Uncollectible Accounts
shown in a note to the financial statements

22. Amortization of intangible non-current assets / Амортизация

нематериальных активов
Amortization is the systematic write-off of the cost of an intangible asset
to an expense, which effectively allocates a portion of the intangible
asset's cost to each accounting period in the economic or legal life of the
asset (an amortization expense). Only recognized intangible assets with
finite useful lives are amortized. This differs from tangible assets which
are depreciated (resulting in a depreciation expense) over their useful life.

The costs of intangible assets with identifiable useful lives are amortized
over their economic/legal life. The finite useful life of an intangible asset
is considered to be the length of time it is expected to contribute to the
cash flows of the reporting entity. Intangible assets are amortized using
the straight line amortization method. Goodwill is an intangible asset that
is not amortized, but is instead tested for impairment on an annual basis.
The useful life of an intangible asset is based on an estimate made by
management and is subject to change under certain market conditions.
 23. Assets, liabilities and equity as the main elements of financial
reports / Активы, обязательства и капитал акционеров -
главные элементы фин. отчетности
Asset is a balance sheet item representing what a firm owns. Assets can
be current or fixed. Current – asset, which will be consumed within one
year (cash, AR and inventory,..). Fixed - assets that are expected to keep
providing benefit for more than one year (equipment, buildings,…)
Liabilities are company's legal debts or obligations that arise during the
course of business. Include loans, AP, mortgages, deferred revenues and
accrued expenses. Current liabilities - debts payable within one year;
long-term liabilities - debts payable over a longer period.
Owners’ Equity is the amount of the funds contributed by the owners (the
stockholders) plus the retained earnings (or losses). Also referred to as
"shareholders' equity".
Example: Student buys a computer for $945. He borrowed $500 from his
friend and spent another $445 earned from his job. His assets are worth
$945, liabilities are $500, and equity $445.
The formula can be written: Assets - Liabilities = Owners’ equity.
24. Bank reconciliation statement and its uses / Банковский акт
сверки
Bank reconciliation statement is a report which compares the bank
balance as per company's accounting records with the balance stated in
the bank statement. Rarely does the balance of a company’s Cash
account exactly equal the cash balance on its bank statement. The bank
may not yet have recorded certain transactions that appear in the
company’s records, and the company may not yet have recorded certain
bank transactions.
A bank reconciliation is therefore a necessary step in internal control. A
bank reconciliation is the process of accounting for the difference
between the balance on a company’s bank statement and the balance in
its Cash account. This process involves making additions to and
subtractions from both balances to arrive at the adjusted cash balance.
Bank reconciliations perform an important function in internal control.
The following are the transactions that most commonly appear in a
company’s records but not on its bank statement: outstanding checks,
deposits in transit. Vice versa: service charge, NSF (nonsufficient
checks), interest income.
 25. Book-keeping and accounting / Счетоводство и бухгалтерский
учет
Bookkeeping is the recording of financial transactions in chronological
order on a daily basis, and is part of the process of accounting.
Transactions include purchases, sales, receipts and payments by an
individual or organization. The accountant creates reports from the
recorded financial transactions recorded by the bookkeeper and files
forms with government agencies.
There are some common methods of bookkeeping such as the single-
entry bookkeeping system and the double-entry bookkeeping system. But
while these systems may be seen as "real" bookkeeping, any process that
involves the recording of financial transactions is a bookkeeping process.
The term accounting involves recording, interpreting, classifying,
analyzing, reporting, verifying and summarizing financial data, as well as
designing the bookkeeping system, establishing controls to make sure the
system is working well. Accountants give orders; bookkeepers follow
them. Recording financial transactions is the first part of and the
foundation of the accounting process.

26. Books of prime entry – definition, purpose, types / Книги

первичного учета - определение, назначение, типы
The ledger accounts of a business are the main source of information
used to prepare the financial statements. However, if a business were to
update their ledgers each time a transaction occurred, the ledger accounts
would quickly become cluttered and errors might be made. To avoid that,
all transactions are first recorded in a book of prime entry which is a
simple note of the transaction, the relevant customer/supplier and the
amount of the transaction. It is in fact a list of daily transactions.

Book of prime entry (Transaction type): Sales day book (Credit sales);
Purchases day book (Credit purchases); Sales returns day book (Returns
of goods sold on credit); Purchases returns day book (Returns of goods
bought on credit); Cash book (All bank transactions); Petty cash book
(All small cash transactions); The journal (All transactions not recorded
elsewhere).
 27. Cash and cash equivalents, and methods of controlling cash,
including bank reconciliations
Cash and cash equivalents are the most liquid assets. They are readily
convertible into cash, such as money market holdings, government bonds
or Treasury bills, marketable securities and commercial paper. Cash
equivalents are distinguished from other investments through their ST
existence.
There are various ways you can control your organization’s cash. Use
these methods to ensure that cash is being managed as well as possible:
Using bank accounts, Maintaining lockboxes, Utilizing electronic funds
transfer, Analyzing “over” and “short” amounts of cash, Conducting
surprise cash counts, supporting physical protection of cash.
A bank reconciliation is a process that explains the difference between
the bank balance shown in an organization’s bank statement, and the
corresponding amount shown in the organization's own accounting
records.
It may be easy to reconcile the difference by looking at recent
transactions in either the bank statement or the organization’s own
accounting records and seeing if some combination of them tallies with
the difference to be explained.

28. Cash and credit purchases / Покупки в кредит и наличными

Cash purchase is an acquisition without financing; buyer pays all cash.
E.g.: a seller offered a lower price for a cash purchase because the buyer
could close immediately, and transaction costs to the seller would be less
than for a sale involving financing.
Credit purchase is a purchase which has been made by us without paying
the money at present but liable to be paid in future. The person to whom
we are liable is called a creditor.
Difference. Cash is offered by the buyer, to the seller. Cash is currency,
as in dollars. Credit is where the buyer offers a credit card, which is a
promise to pay, by the credit card company, who then bills the card
holder for the purchase price plus an interest rate, for the service of not
having to pay at the time that the items are bought.
In an accounting point of view, cash purchases appear in the cash book.
A credit purchase records a transaction in a party's name showing that we
owe some money to that party to be paid later.
 29. Cash flow from investing activities: main inflows and outflows
This section of the cash flow statement shows the amount of cash firms
spend on investments. Investments are usually classified as either capital
expenditures - money spent on items such as new equipment or anything
else needed to keep the business running or monetary investments such
as the purchase or sale of government bonds. The most important parts of
this section for investors are typically the capital expenditures line item
and the line item for acquisitions of other businesses.
Inflows:
• Proceeds from disposal of property, plant and equipment
• Cash receipts from disposal of debt instruments of other entities
• Receipts from sale of equity instruments of other entities
Outflows:
• Payments for acquisition of property, plant and equipment/for purchase
of debt instruments of other entities/for purchase of equity instruments
of other entities
• Sales/maturities of investments
• Includes purchasing and selling long- term assets and other
investments.
30. Cash flow from operating activities: main inflows and outflows.
Cash flows from operating activities are the most important source of
internal finance as represent an organization’s ability to maintain its
operating activities, service debts, repay loans, etc. The cash flows from
operating activities are most commonly derived from the primary
revenue-generating activities of a business or an entity. This is the
amount of cash generated by an entity from its core business as opposed
the peripheral activities such as financing or investing. Inflows:
• Cash collected from customers against sale of goods or rendering of
services
• Cash collections from “other revenues” such as commissions, royalties,
and fees
• Cash refunded against income taxes if they cannot be specifically
identified with the investing or financing activitiesOutflows:
• Cash paid to vendors against supply of goods or services
• Cash paid to or on behalf of employees of the entity
• Cash paid against income taxes if they cannot be specifically identified
with the investing or financing activities
 31.Cash flow statement and its uses / Отчет о движении
денежных средств
Cash flow statement shows how changes in balance sheet accounts and
income affect cash and cash equivalents, and breaks the analysis down to
operating, investing, and financing activities. The cash flow statement is
intended to:
• provide information on a firm's liquidity and solvency and its ability
to change cash flows in future circumstances
• provide additional information for evaluating changes in assets,
liabilities and equity
• improve the comparability of different firms' operating performance
by eliminating the effects of different accounting methods
• indicate the amount, timing and probability of future cash flows
32. Classification and valuation in accounting / Классификации и
оценка в БУ
The valuation issue:
• Focuses on assigning a monetary value to a transaction
• Most controversial issue in accounting
• According to GAAP, use original cost
• Also called historical cost
• Practice of recording transactions at cost follows the cost principal
(the principal that a purchased asset should be recorded at its actual
cost- is used because a cost is verifiable)

Classification assigns transactions to the appropriate accounts. Proper

classification depends on:
• correctly analyzing the effect of each transaction on the business
• Maintaining a system of amounts the reflects that effect
• The classification issue refers to the uncertainties associated with
assigning transactions to the appropriate accounts

Accounts used to record transaction data: record data in usable form; data
can be quickly retrieved.
Separate account is used to each asset, liability, component of owner’s
equity.
 33. Components of stockholders’ equity: accounting treatment and
disclosure / Компоненты доли акционеров в средствах
предприятия
In a corporation’s balance sheet, the owners’ claims to the business are
called stockholders’ equity:
1) Paid-in (=contributed) capital - the amounts received when
company issued stocks; lists kinds of stock (common,
preferred); their par value; the number of shares authorized,
issued, and outstanding. Authorized= Issued + Unissued.
Issued = Outstanding + Treasury stock.
2) Retained earnings - the cumulative net income since the start of
the corporation minus the dividends declared since the start of
the corporation.
3) Treasury stock (cost method) - the amount paid by the
corporation to purchase its own shares of stock. This account
has a debit balance => reduces the stockholders' equity.
The total of stockholders' equity is the book value (NOT market value) of
the corporation.

34. Consolidated financial statement / Консолидированный

балансовый отчет
Financial Statements represent a formal record of the entity’s financial
activities. These are written reports that quantify the financial strength,
performance and liquidity of a company. 4 types:
• Statement of Financial Position (also known as the Balance Sheet) is
comprised of Assets, Liabilities and Equity. (Assets=Liabilities
+Equity)
• Income Statement reports the company's financial performance in
terms of net profit/loss over a period. It is composed of: Income and
expenses: Net profit = income-expenses
• Cash Flow Statement presents the movement in cash and bank
balances over a period. It is classified into Operating, Investing and
Financing activities.
• Statement of Changes in Equity consists of: Net Profit/loss during the
period, Share capital issued or repaid during the period, Dividend
payments, Gains/ losses) recognized directly in equity, Effects of a
change in accounting policy.
 35. Control accounts and their uses / Контрольный счет и его
применения
A controlling account is an account in the general ledger that maintains
the total of the individual account balances in a subsidiary ledger. A
subsidiary ledger is a ledger separate from the general ledger that
contains a group of related accounts. The total of the balances in the
subsidiary ledger accounts should be equal to the balance in the
corresponding controlling account. The sum of the account balances from
the subsidiary accounts must equal the balance in the related general
ledger controlling account.
E.g.: AP control account, all payables entered during one day will be
aggregated from the subsidiary ledger and posted as a single summary-
level number into the AP control account. Actually different control
accounts in general ledger can be used to compare to sub ledgers' total.

36. Definition and uses of account’s normal balance / Определение

и использование нормального баланса счета.
Normal balance is the accounting classification of an account. It is a part
of double-entry book-keeping technique. An account has either credit or
debit normal balance. To increase the value of an account with normal
balance of credit, one would credit the account. To increase the value of
an account with normal balance of debit, one would likewise debit the
account.

The fundamental accounting equation is: Asset = Liability + Owner's

equity. The account on left side of this equation has a normal balance of
debit. The accounts on right side of this equation have a normal balance
of credit. The normal balance of all other accounts are derived from their
relationship with these three accounts.

Normal balance of common accounts: Asset (Debit), Liability (Credit),

Owner's Equity (Credit), Revenue (Credit), Expense (Debit), Retained
Earnings (Credit), Dividend (Debit).

In the accounting sense, debit does not always mean addition, and credit
does not always mean subtraction.
 37. Direct and indirect methods of setting out cash flow statement /
Прямой и косвенный методы составления отчета о движении
денежных средств
The direct method adjusts each item in the income statement to its cash
equivalent, more easily understood by the average reader. The indirect
method lists only necessary adjustments to convert net income to net cash
flows, superior from an analyst’s perspective, used by most companies. It
doesn't require the adjustment of each item on the income statement.
Both methods result in the same net figure. There is no difference in the
cash flows reported in the investing and financing activities sections.
Under the direct method, the cash flows from operating activities will
include the amounts for lines such as cash from customers and cash paid
to suppliers. In contrast, the indirect method will show net income
followed by the adjustments needed to convert the total net income to the
cash amount from operating activities.
The direct method must also provide a reconciliation of net income to the
cash provided by operating activities. This is done automatically under
the indirect method.

38. Double-entry book-keeping principles / Принцип двойной

записи бухгалтерского учета
The basic principle of double entry bookkeeping is that there are always
two entries for every transaction.
One entry is known as a credit entry (decrease in assets, decrease in
expense, increase in liability, and increase in income) and the other is a
debit entry (increase in assets, increase in expense, decrease in liability,
and decrease in income).

The entries are often displayed in ‘T’ accounts. Simple examples:

• Purchase of office stationery for cash: Debit Office stationery
(increase in an expense, Credit Cash (decrease in an asset)
• A credit sale: Debit Receivables (increase in an asset), Credit Sales
(increase in income)
• Purchase, on credit, of goods for resale: Debit Purchases (increase in
an expense. ‘Purchases’ is the name given to purchases for resale),
Credit Payables (increase in a liability)
 39. Enhancing qualitative characteristics of financial statements /
Качественные характеристики финансовой отчетности
Understandability. The information must be readily understandable to
users of the financial statements. Clearly presented, with additional
information supplied in the supporting notes as needed to assist in
clarification.

Relevance. The information must be relevant to the needs of the users.

This may involve reporting particularly relevant information, or
information whose omission or misstatement could influence the
economic decisions of users.

Reliability. The information must be free of material error, and not

misleading. Thus, the information should faithfully represent transactions
and other events, reflect the underlying substance of events, and
represent estimates and uncertainties through proper disclosure.

Comparability. The information must be comparable to the financial

information presented for other accounting periods, so that users can
identify trends in the performance and financial position of the reporting
entity.

40. Events after the reporting period / События после отчетной

даты
Events After The Reporting Period contain requirements for when events
after the end of the reporting period should be adjusted in the financial
statements. Adjusting events are those providing evidence of conditions
existing at the end of the reporting period, whereas non-adjusting events
are indicative of conditions arising after the reporting period (the latter
being disclosed where material).

Adjusting event: An event after the reporting period that provides further
evidence of conditions that existed at the end of the reporting period,
including an event that indicates that the going concern assumption in
relation to the whole or part of the enterprise is not appropriate.

Non-adjusting event: An event after the reporting period that is indicative

of a condition that arose after the end of the reporting period.
 41. Factoring, Securitization, Discounting as liquidity improvement
method / Факторинг, Секьюритизация, дисконтирование как
метод улучшения ликвидности.
Factoring is the sale or transfer of accounts receivable (AR).
• With resource: The seller of the AR is liable to the purchaser if a
receivable is not collected
• Without recourse: The factor that buys the AR bears any losses from
uncollectible accounts
The factor charges a fee for its service (usually about 1% for sales with
resources; higher fees for sales without resource because of increased
risk). Selling receivables with resource creates a contingent liability.

Securitization is the sale of batches [партия] of a company’s AR at a

discount to companies and investors. The buyer receives the full amount
when the receivables are paid. The revenue is amount of the discount.

Discounting is the sale of promissory notes held as notes receivable. The

holder of the note receives proceeds equal the maturity value of the note
less the interest amount. The seller of the note expects to collect the
maturity value of the note in maturity date.

All these methods decrease AR => decrease the probability of obtaining

“bad debts” [невозвратных долгов], which leads to improvement in the
company’s liquidity.

42. Faithful representation of accounting information / Точное

представление бухгалтерской информации
Financial information must faithfully represent the phenomena that it
purports to represent.
A perfect faithful representation would be complete, neutral and free
from error.A faithful representation will at least include:
• a reporting line description explains the nature of the statement item
(account name)
• an amount connected to this description
• a further description of what the amount stands for (e.g.
original/adjusted cost, fair value,..)
 43. Income statement and statement of comprehensive income:
components and usage
Income statement is a financial statement that summarizes the various
transactions of a business during a specified period, showing the net
profit or loss. It measures a company's financial performance over a
specific accounting period. It is often referred as a profit and loss
statement. It is one of the major financial statements used by accountants
and business owners as indicates how the revenue is transformed into net
income (after all expenses and taxes). This contrasts with the balance
sheet (statement of financial position) which represents a single moment
in time. Comprehensive income is the change in equity (net assets) of an
enterprise during a period from transactions and other events and
circumstances from non-owner sources. The statement of comprehensive
income aggregates income statement and other comprehensive income
which isn't reflected in profits and losses. Total comprehensive income is
the change in equity during a period resulting from transactions and other
events, other than those changes resulting from transactions with owners
in their capacity as owners.
44. International Accounting Standards and their uses
International Accounting Standards (IAS) - an older set of standards
stating how particular types of transactions and other events should be
reflected in financial statements. Since 2001, the new set of standards has
been known as the international financial reporting standards (IFRS).
IAS committee has no authority to require compliance with its
accounting standards. However, many countries require the financial
statements of publicly-traded companies to be prepared in accordance
with IAS. Currently, there are over 120 countries who adopted IFRS,
some of them fully, some of them partially.
E.g.: imagine yourself as the owner of a few companies in different
countries (with different accounting rules), who wants to review financial
results of the companies. For example, revenues are reported on accrual
basis in one country, and on cash basis in another country. How can you
say which of your companies has better sales if those figures are
incomparable? IAS help to simplify this process and help to compare
different companies with the help of the adopted standards.
 45. Inventory valuation methods: FIFO, LIFO, Weighted average /
Методы оценки запасов: ФИФО, ЛИФО, метод
средневзвешенной стоимости
Average-cost (weighted average) method: inventory is priced at average
cost of all goods available for sale during the period in order to determine
the value of ending inventory. Average cost = total cost of goods
available for sale / total units available for sale.
FIFO (first-in first-out) method: costs of the first items should be
assigned to the first items sold. The cost of ending inventory reflects the
cost of merchandise from the most recent purchases. The costs assigned
to cost of goods sold are from the earliest purchases. When prices ↑,
FIFO yields the highest net income. When prices ↓, FIFO tends to charge
the older and higher prices against revenues, reducing income.
Disadvantage: magnifies the effects of the business cycle on income.
LIFO (last-in first-out) method: costs of the last items purchased should
be assigned to the first items sold and the cost of ending inventory should
reflect the cost of the goods purchased earliest. LIFO is prohibited by
IAS. LIFO shows a smaller net income during inflation and a larger net
income during deflation period.

46. Journals in accounting: definition, purpose, types / Журналы в

бухгалтерском учете: определение, назначение, типы
Journal is a financial record that contains all the recorded financial
transaction information about a business. General accounting journal is
created by entering information from receipts, sales tickets, cash register
tapes, invoices, and other data sources that show financial transactions.

Business transactions should be recorded so that they can be presented in

the journal in chronological order. Later, the debit and credit portions of
each transaction are transferred to the appropriate accounts in the ledger.
A separate journal entry is used to record each transaction; the process of
recording transactions is called journalizing.

Journal can be a book, spreadsheet, or accounting software (now, the

most widespread form). Businesses also have several special-purpose
journals, each for recording a common transaction, such as credit sales,
credit purchases, cash receipts, and cash disbursements.
 47. Management accounting and financial accounting: their
characteristics / Управленческий учет и бухгалтерский учет:
характеристики.
Managerial accounting is used primarily by those within a company or
organization. Reports can be generated for any period of time such as
daily, weekly or monthly. Reports are considered to be "future looking"
and have forecasting value to those within the company.

Financial accounting is used primarily by those outside of a company or

organization. Financial reports are usually created for a set period of
time, such as a financial year or period. Financial reports are historically
factual and have predictive value to those who wish to make financial
decisions or investments in a company. Financial accounting
concentrates on the production of financial reports, including the basic
reporting requirements of profitability, liquidity, solvency and stability.
Reports of this nature can be accessed by internal and external users such
as the shareholders, the banks and the creditors.

48. Mark up on cost and margin: definitions, uses,

differences / Наценка и маржа: определение,
использование, разница
Margin and markup are terms used in the derivation of product
costs and profits.

Margin (also known as gross margin) is sales minus the cost of

goods sold (CoGS). E.g., if a profit sells for $100 and costs $70 to
manufacture, its margin is $30. Or, stated as a percentage, the
margin percentage is 30% (calculated as the margin divided by
sales = $30/$100).

Markup is the amount by which the cost of a product is increased

in order to derive the selling price. To use the preceding example,
a markup of $30 from the $70 cost yields the $100 price. Or,
stated as a percentage, the markup percentage is 42.9%
(calculated as the markup amount divided by the product cost).
 49. Meaning and purpose of financial statements'
understandability / Понятность как качественная
характеристика финансовой отчетности
Understandability is one of the four qualitative characteristics of financial
accounting information. It requires the information presented in financial
reports to be concise, complete and clear in presentation. The information
should be presented so as to facilitate the user of the information.
Understandability would require the financial statements to be identified
by presenting the name of the financial statement, the name of the entity
and the period covered by the statement.
Understandability also requires the notes to be properly numbered and
cross-referred to the original balance sheet and income statement items.
For example the note number of disclosure on leases should be
mentioned in front of the lease payable line item appearing on the face of
a balance sheet.
Financial instruments and derivatives are specialized instruments which
require rigorous understanding of finance to properly understand the
underlying economics. In such complexity we cannot omit the disclosure
because it is not easily understandable.

50. Measurement in Accounting / Стоимостное измерение в

бухгалтерском учете
Money Measurement Concept in accounting means that only transactions
and events that are capable of being measured in monetary terms are
recognized in the financial statements.
All transactions and events recorded in the financial statements must be
reduced to a unit of monetary currency. Where it is not possible to assign
a reliable monetary value to a transaction or event, it shall not be
recorded in the financial statements. However, any material transactions
and events that are not recorded for failing to meet the measurability
criteria might need be disclosed in the supplementary notes of financial
statements to assist the users in gaining a better understanding of the
financial performance and position of the entity.
E.g.: Skills and competence of employees cannot be attributed an
objective monetary value and should therefore not be recognized as
assets in the balance sheet. However, those transactions related to
employees that can be measured reliably such as salaries expense and
pension obligations are recognized in the financial statements.
 51. Merchandising Transactions / Посреднические
транзакции
Merchandising Businesses earn income by buying and selling
products or merchandise. It can be wholesalers or retailers.
Principal transactions of merchandising businesses are buying
assets and selling assets. These transactions involve cash,
accounts receivable, and merchandise inventory.
So these transactions could be:
1) Transactions Related to the Purchase of Merchandise (purchases
of merchandise on credit; transportation costs on purchases;
purchases returns and allowances; payments on account)
2) Transactions Related to Sales of Merchandise (sales of
merchandise on credit; payment of delivery costs; returns of
merchandise sold; receipts on account)

52.Nature and purpose of accounting standards

Accounting standards are set of guidelines and principles
formulated by an authorized body for preparation and
presentation of financial statements. Objective of Accounting
Standards is to standardize the diverse accounting policies and
practices, to eliminate possible non-comparability of financial
statements and the reliability to the financial statements.
To ensure that financial statements are understandable, a set of
practices, called generally accepted accounting principles
(GAAP), has been developed to provide guidelines for financial
accounting. GAAP can be national (US GAAP) or international
(IAS, IFRS).
E.g. the purpose of IASB as an international standard is to
develop a single set of high-quality, understandable, enforceable
and globally accepted financial reporting standards based upon
clearly articulated principles.
 53. Non-controlling interest and goodwill in consolidated
statements
Minority (non-controlling) interest is the portion of a subsidiary
corporation's stock that is not owned by the parent corporation. Minority
interest in the subsidiary company is generally less than 50% of
outstanding shares. Minority interest belongs to other investors and is
reported on the consolidated balance sheet of the owning company to
reflect the claim on assets belonging to other, non-controlling
shareholders. Also, minority interest is reported on the consolidated
income statement as a share of profit belonging to minority shareholders.

Goodwill: the value of a company’s brand name, solid customer base,

good customer relations, good employee relations and any patents or
proprietary technology represent goodwill. Goodwill is considered an
intangible asset because it is not a physical asset like buildings or
equipment. The goodwill account can be found in the assets portion of a
company's balance sheet.

54. Non-current assets: depreciation methods / Долгосрочные

активы: методы амортизации
Depreciation is the periodic allocation of the cost of a tangible asset over
the asset’s estimated useful life. All tangible assets except land have a
limited useful life.
• Straight-line method: the asset’s depreciable cost is spread evenly
over the estimated useful life of the asset. Annual depreciation = (Cost
– Residual Value) / Estimated Useful life
• Production method is based on the assumption that depreciation is
solely the result of use and that the passage of time plays no role in the
process. Production method (e.g.: depreciation cost per mile) = (Cost
– Residual Value) / Estimated Units of Useful Life.
• Declining-Balance Method - an accelerated method of depreciation
resulting in relatively large amounts of depreciation in the early years
of an asset’s life and smaller amounts in later years. Depreciation is
computed by applying the fixed rate to carrying value (the declining
balance). Double-declining-balance method – twice the straight-line
method’s rate is used.
 55. Perpetual and periodic systems of inventory accounting
Perpetual Inventory System determines inventory by keeping continuous
records of the quantity and, usually, the cost of individual items as they
are bought and sold. 1)Determine product availability; 2)Avoid running
out of stock; 3)Control financial costs associated with investments in
inventory
Purchases - cost of each item is recorded in the Merchandise Inventory
account. Sales - cost of each item is transferred from the Merchandise
Inventory account to the CoGS account. Therefore –
• Merchandise Inventory account balance = Cost of goods on hand
• Cost of Goods Sold account balance = Cost of merchandise sold to
customers (Larger companies, Companies that sell high-value items)
Periodic Inventory System - determines inventory by a physical count
taken at the end of the accounting period. No detailed records of actual
inventory on hand are maintained. Amount of inventory on hand is
accurate only on the balance sheet date. 1)Used to reduce the amount of
clerical work;2)Lack of records => lost sales or high operating cost
56. Problems inherent in accounting systems and the importance of
internal control to safeguard the completeness and accuracy of the
accounting records
Accounting information systems summarize financial data about a
business and organize it into useful forms. Nowadays most AIS are
computerized. However, there are some problems that arose from the
fusion of accounting and information technology: 1)computerized
systems are at constant risk of hackers, power failures, viruses and loss of
information; 2)relatively high cost of computerized accounting systems;
3)need for staff training and system maintenance; 4)harder to find human
errors in complicated systems; 5)computer fraud risk
These problems are mainly manageable and can be avoided by
establishing sound internal control of information and communication
within the company. It involves the following activities: 1)periodic
independent verification (to detect errors); 2)authorization (e.g.
controlling the use of firms’ and their web access); 3)physical control
(e.g. use of safety deposit boxes, safes); 4)separation of duties (to prevent
fraud); 5)sound personnel procedures (e.g. proper training)
This may help companies avoid problematic issues of AIS and achieve
accurate disclosure of financial information.
 57. Provisions, contingent liabilities, contingent assets: accounting
and disclosure
A provision is an account which records a present liability of an entity to
another entity. The recording of the liability affects both the current
liability side of an entity’s balance sheet as well as an appropriate
expense account in the entity’s income statement. The FASB requires
companies to disclose in a note to their financial statements any
contingent liabilities and commitments they may have.
A contingent liability is not an existing obligation. Rather, it is a potential
liability because it depends on a future event arising out of past
transactions. Contingent liabilities often involve lawsuits, income tax
disputes, discounted notes receivable, guarantees of debt, and failure to
follow government regulations.
Contingent asset is an asset in which the possibility of an economic
benefit depends solely upon future events that can’t be controlled by the
company. Due to the uncertainty of the future events, these assets are not
placed on the balance sheet. However, they can be found in the
company’s financial statement notes.

58. Qualitative characteristics of financial reports

To facilitate interpretation of accounting information, the FASB
(Financial Accounting Standards Board that develops GAAP) has
established standards, or qualitative characteristics, by which to judge the
information. Fundamental characteristics are relevance and faithful
representation.
Relevance means that the information has a direct bearing on a decision:
if the information were not available, a different decision would be made.
To be relevant, information must have predictive value, confirmative
value, or both. Information has predictive value if it helps current and
potential investors (owners) and creditors make decisions about the
future. Information has confirmative value if it provides the information
needed to determine if expectations have been met. Relevance is
connected with materiality - relative importance of an item or event.
Faithful representation means that the financial reporting for an entity
must be a reliable depiction of what it purports to represent. To be
faithful, financial information must be complete (for reliable decisions),
neutral (absence of bias), and free from material error.
 59.Recording financial data relating to business
operations in books of accounts
Preliminary records of account are records made at the
instant of the financial transaction (or as soon as possible
afterwards): Invoices, Receipts, Bills, Waste books. Act as a
reminder to ensure the correct information is entered in the
books of account. Main types of books of accounts:
Cash books deal with both credit and debit transactions
using cash, record transactions chronologically, analyse
transactions, are totaled on a regular basis to be posted to
the ledger, either directly or through the journal.
Day books deal with financial transactions carried out on
credit, are often split into sales day books and purchase day
books, record transactions chronologically, analyse
transactions, are posted to the ledger, either directly or
through the journal.
Journals can act either as a book of prime entry or as a
book of secondary entry, arrange transactions of the same
nature together, record transactions chronologically, show if
transactions are to be posted to the debtor or creditor side of
the relevant ledger account.
60.Reducing balance method of depreciating non-current
assets and the straight-line method: advantages and
disadvantages for different types of assets
Reducing balance method’s advantages: easy to understand and
simple to implement. Depreciation is calculated annually on the
opening balance of asset; equalizes the yearly burden on profit
and loss account in respect of both depreciation and repairs. The
total charge against revenue over different years remains more or
less the same; is acceptable for income tax purposes; matches the
cost and revenue of the business. The greater amount of
depreciation provided in initial years is matched against the
higher amount of revenue generated by increased production by
the use of new asset.
Disadvantages: charges heavy amount of depreciation in earlier
years; the formula to obtain rate of depreciation can be applied
only when there is residual value of the asset.
Straight line method advantage: the accountant knows exactly
how much will be expensed on the item each year until it reaches
the end of its useful life. When forecasting, the accountant does
not have to spend time calculating the depreciation for each year
since it will be the same amount. Unfortunately, there are some
problems with using straight line depreciation to determine the
worth of assets since the assets may not depreciate at the same
rate every year. It also provides a way to show greater business
income in the early part of the asset's life.
The disadvantage is that assets are often shown with inflated
values since the assets may have lost the greatest amount of value
in the first year or two. While this may become an issue if the
assets are being used to secure credit, in the end a decision will
need to be made whether predictability in accounting or
creditworthiness is the more important focus.
 61.Revaluation of non-current assets / Переоценка
внеоборотных активов
Revaluations should be carried out regularly, carrying amount of
an asset must not differ materially from its fair value at the
balance sheet date. If an item is revalued, the entire class of
assets to which that asset belongs should be revalued.
If a revaluation results in an increase in value, it should be
credited to other comprehensive income and accumulated in
equity under the heading "revaluation surplus" unless it represents
the reversal of a revaluation decrease of the same asset previously
recognized as an expense. A decrease arising as a result of a
revaluation should be recognized as an expense to the extent that
it exceeds any amount previously credited to the revaluation
surplus relating to the same asset.
When a revalued asset is disposed of, any revaluation surplus may
be transferred directly to retained earnings, or it may be left in
equity under the heading revaluation surplus. The transfer to
retained earnings should not be made through profit or loss.

62.Sales and net sales – accounting and reporting / Оборот

и чистый объем продаж
A sale is the act of selling a product/service in return for money or
other compensation. Net sales - the amount of sales generated by
a company after the deduction of returns, allowances for damaged
or missing goods and any discounts allowed. The sales number
reported on a company's financial statements is a net sales
number, reflecting these deductions. The amount of total revenues
reported by a company on its income statement is usually the net
sales figure, which means that all forms of sales and related
deductions are aggregated into a single line item.
 63. Statement of Cash Flows: description of three types of activities
The statement of cash flows classifies cash receipts and cash payments
into categories:
1) Operating activities include the cash effects of transactions and
other events that affect the income statement. In effect, items on the
income statement are changed from an accrual to a cash basis.
2) Investing activities include the cash effects of transactions that affect
long-term assets: acquiring and selling long-term assets, acquiring
and selling marketable securities other than trading securities or
cash equivalents, making and collecting loans, investing activities.
3) Financing activities include the cash effects of transactions that
affect long-term liabilities and stockholders’ equity: obtaining
resources from/ returning to stockholders and providing them with a
return on their investment, obtaining resources from creditors,
repaying amounts borrowed from creditors or otherwise settling
obligations: repayments of accounts payable or accrued liabilities
are classified under operating activities.

64. Statement of financial position: creating and analysis /

Бухгалтерский баланс
Statement of Financial Position (Balance Sheet) presents the financial
position of an entity at a given date. Its 3 main components:
• Assets (Something that an entity owns or controls. Assets must be
classified as current or non-current depending). Assets must be
equal to Liabilities + Equity.
• Liabilities (An obligation that a business owes to someone.
Liabilities must be classified as current or non-current)
• Equity (Equity is what the business owes to its owners. It represents
the residual interest in the business that belongs to the owners).

This statement helps to assess the financial health of an entity, its

liquidity, risks (financial, credit business). Analysis (with other financial
statements of the entity and competitors) over several accounting periods
may help to identify relationships and trends which are indicative of
potential problems or areas for further improvement. Analysis of the
statement of financial position could assist to predict the amount, timing
and volatility of entity's future earnings.
65. Statement of financial position: it’s preparation and uses
Prepare the proper heading. The heading, which should be placed at the
top of the page and centered, needs 3 pieces of information: the
company's name, the words "Balance Sheet" or "Statement of Financial
Position," and the exact date that the balance sheet reflects (month, day,
and year). 1)Record the account names. A balance sheet shows the
balances of all the company's accounts. On the left side of the page,
record the names of all asset accounts, classified: current assets, plant,
property, and equipment, investments, and intangible assets. On the right
side, record the names of all liability accounts. Record all owner's equity
accounts underneath the liability accounts. 2) Record the balance of each
account. To the right of each account name, fill in the account balance as
of the balance sheet's date. Provide subtotals for each classification, and
provide total amounts for assets, liabilities, and owner's equity. Check
Total assets = Total liabilities + Owners’ equity.
66. Steps of the accounting cycle / Стадии учетного цикла
The accounting cycle is a series of steps whose ultimate purpose is to
provide useful information to decision makers. These steps are as
follows: 1)Analyze business transactions from source documents.
2)Record the transactions by entering them in the general journal. 3)Post
the journal entries to the ledger, and prepare a trial balance. 4) Adjust the
accounts, and prepare an adjusted trial balance (taking into account
AP/AR, deferred payments). 5)Prepare financial statements. 6)Close the
accounts, and prepare a post-closing trial balance.
67. Suspense account / Транзитный/вспомогательный счет
A suspense account is a temporary resting place for an entry that will end
up somewhere else once its final destination is determined. There are two
reasons why a suspense account could be opened: 1) a bookkeeper is
unsure where to post an item; 2) there is a difference in a trial balance.
E.g., a customer sends in a payment for $1,000 but does not specify
which open invoices it intends to pay. Initial entries:
Debit Cash 1000$
Credit Suspense 1000$.
The accounting staff contacts the customer, identifies which invoices are
to be paid with the $1,000:
Debit Suspense 1000$
Creit A/R 1000$

68. The main elements of financial statements

The 10 elements of financial statements defined in SFAC 6 (Statement of
Financial Accounting Concepts):1) Assets represent probable future
economic benefits controlled by the enterprise. 2) Liabilities represent
obligations to other entities. 3)Equity is the residual interest in the assets
of an entity that remains after deducting liabilities. 4)Investments by
owners are increases in equity resulting from transfers of resources to a
company in exchange for ownership interest. 5)Distributions to owners
are decreases in equity resulting from transfers to owners. 6) Revenues
are gross inflows resulting from providing goods or services to
customers. 7)Gains are increases in equity from peripheral, or incidental,
transactions of an entity. 8)Expenses are gross outflows incurred in
generating revenues. 9)Losses represent decreases in equity arising from
peripheral, or incidental, transactions of an entity. The definitions of
these nine elements are in basic agreement with those used in practice.
But, SFAC 6 also introduced a new term, the 10th element:
10)Comprehensive income is the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources (often ≠ net income)
69. The main financial reports and their purpose
Financial statements are key components in revealing the financial health
of an organization.
1. Statement of Financial Position (Balance Sheet): The balance sheet
includes the elements of the accounting equation: Assets = Liabilities +
Shareholders’ equity. The assets on a balance sheet are classified as
current or fixed. Liabilities - as current or long-term.
2. Income Statement. A firm's revenues, gains, expenses and losses are
listed here. Revenues – Expenses + Gains – Losses = Net income/Net
loss.
3. Cash Flow Statement: shows the amount of cash within a company.
a. Operating activities: shows the cash flowing in/out of the company
in relation to its business operation (also includes net income).
b. Investing activities: shows cash the company received and spent on a
company's capital investments.
c. The Financing activities section shows the inflows and outflows of
cash related to the company’s issued financial securities.
4. Statement of owner’s equity (of retained earnings): This statement
shows the changes in the shareholders’ equity account, details the
movement in owners' equity over a period.
 70. Trial balance: uses and limitations / Пробный баланс
Trial Balance is a list of closing balances of ledger accounts on a certain
date and is the first step towards the preparation of financial statements.
It is usually prepared at the end of an accounting period and is a working
paper that accountants use as a basis while preparing financial
statements.

Trial balance ensures that the account balances are accurately extracted
from accounting ledgers. It also assists in the identification and
rectification of errors.

Limitations: trial balance only confirms that the total of all debit balances
match the total of all credit balances. Trial balance totals may agree in
spite of errors. An example would be an incorrect debit entry being offset
by an equal credit entry. Likewise, a trial balance gives no proof that
certain transactions have not been recorded at all because in such case,
both debit and credit sides of a transaction would be omitted causing the
trial balance totals to still agree.

71. Users' and stakeholders' need for accounting information /

Потребность пользователей и заинтересованных сторон в
учетной информации
Internal users:
1) Management: for analyzing the organization's performance and
position and taking measures to improve the company results.
2) Employees: for assessing company's profitability and its
consequence on their future remuneration and job security.
3) Owners: for analyzing the viability and profitability of their
investment and determining any future course of action, for making
better financial decisions.

External users:
• Creditors: for determining the credit worthiness of the organization.
• Investors: for analyzing the feasibility of investing in the company.
• Customers: for assessing the financial position of its suppliers’
stability in the long term.
• Regulatory (and tax) authorities: ensuring that accounting
disclosures follow the regulations.
 72. What is the subject of economic analysis? / Что является
предметом экономического анализа?
Economic analysis (EA) is a systematic approach to determining the
optimum use of scarce resources, involving comparison of two or more
alternatives in achieving a specific objective under the given assumptions
and constraints. EA finds out key elements of the analyzing object and
examines them individually.

EA takes into account the opportunity costs of resources employed and

attempts to measure in monetary terms the private and social costs and
benefits of a project to the community or economy.

2 levels of EA: Macro (global, national, regional economy) and Micro

(companies). EA is a key management function. EA’s aim is to direct,
control and review.

73. What are business model of an enterprise business inputs,

outputs and outcomes? / Что такое бизнес модель
предприятия, входные/выходные данные, результаты?
Business model is the system of inputs, business activities, outputs and
outcomes that aims to create value over the short-, medium-, and long-
term.

Inputs (factors production):

1) Capital – can be divided into 2 groups: fixed and operating

2) Labor – includes all human resources
3) Land – includes natural resources
4) Intellectual capital – the value of an organization’s employee
knowledge and any proprietary [патентованный, частный]
information that may provide the company with a competitive
advantage.

Outputs – key products or services that an organization produces.

Outcomes - the internal and external consequences for the capitals as a

result of organization’s business activities and outputs.
 74.List Key factors of production / Главные факторы
производства
Any business model includes four key inputs:
• Capital - can be divided into two groups: Fixed capital (assets that are
not used up in the actual production of a good or service, but have a
reusable value: factories, office buildings, computer servers, insurance
policies) & Operating capital (capital available for the operations of a
firm).
• Labor - includes all human resources
• Land - includes natural resources
• Intellectual capital -the value of an organization's employee
knowledge and any proprietary information that may provide the
company with a competitive advantage.

75. Explain what is meant by the term "SMART objectives". Give

an example of a SMART objective / Что означают критерии
"SMART"? Примеры.
An effective way to set objectives is to follow the well-known acronym
SMART. E.g.: Software company would like to increase its sales, so
there is an objective to increase its market share to 3% in 12 months:
• Specific – target a specific area for improvement (specifically states
that the firm would like to increase its market share instead of
something general like be more profitable).
• Measurable – quantify or at least suggest an indicator of progress
(specifically states that the firm would like to increase its market
share to 3%. Stating the percentage provides something that can be
measured to show whether the objective has been achieved or not).
• Achievable – specify who will do it (Before setting it is necessary to
assess the company’s capabilities and its marketing environment to
ensure that the objective is achievable).
• Realistic – state what results can realistically be achieved, given
available resources (Before setting a 12 month deadline for the
objective the firm should have reviewed its resources, employees,
competitors and current market share to ensure that an increase in
market share to 3% in 12 months is realistic).
• Time-related–specify when the result(s) can be achieved (12 month
timescale)
 76.Explain, with some examples, what corporate objectives a steel
company could establish / Объясните, с некоторыми
примерами, какие корпоративные цели у сталелитейной
компании (сделано по корпоративным целям НЛМК)
• Environmental protection: Implement environmental protection
measures in the framework of the development. E.g., constantly
reinstall the most innovative equipment that decreases the level of
fuels issued into atmosphere.
• HR: Develop procedures of working with subsidiaries.
• Labor protection: Implement measures aimed at creating healthy and
safe working conditions for employees. For example, provide free
Voluntary medical insurance for employees.
• Social programs: Implement programs that address the socio-
economic development of local communities.
• Social Reporting:
o Improve preparation procedure of Social Reports in accordance
with international practice.
o To improve the interaction with stakeholders. For instance,
hold meetings with stakeholders in order to take into
consideration all their interests.
o Improve system of risk management
• Increasing production efficiency: Implement measures to improve
productivity.
• Customer Satisfaction: Continue work aimed at fulfilling the wishes
of consumers expressed by them in the course of customer satisfaction
scores

77.Why might short-term profit maximization not be an

appropriate objective for a steel company?/ Почему
максимизация прибыли не может быть целью компании по
производству стали в краткосрочном периоде?
There are several reasons. First is that we should take into account the
long term aspects of our business as we have the production process
(e.g.:long-term development steps in bringing new technologies to a
marketable stage). The second reason could be that in short run we have
fixed cost, but in the long-run all costs are variable.
 78. Explain the meaning of the corporate objective "increasing
shareholder value
Increasing shareholder's value means that a company can afford to
increase earnings, dividends and share price and it also increases the
amount of cash flow over time.

79. Explain what is meant by `stakeholders` and differentiate

between internal and external stakeholders
Stakeholders are a party that has an interest in an enterprise or project.
Internal stakeholders include its investors, employees, shareholders.
They are all affected by wages and job stability (e.g. managers may get
bonuses so they want the business to be very successful).
Owners/Shareholders want the best for the company so they make more
money.
External stakeholders include customers, suppliers, government. They
are involved with the company but not employed directly by the
company (e.g. the Government is interested as company's pay taxes and
employ people).

80.Explain what is meant by `Business responsibilities to

stakeholders`
Each business has responsibilities to its stakeholders, e.g.:
• Responsibilities toward customers: to meet customer needs with
unfailing quality and support product development
• Responsibilities toward Suppliers: To operate a fair and impartial
purchasing system and build relationships based on trust
• Accountability and Conduct for Shareholders and Investors: to
cultivate appropriate investor relations and establish measures to
impart shareholder opinions to company's management
• Responsibilities toward Employees: To respect every employee
providing comfortable working conditions and rewarding
employment
• Responsibilities toward Society and Local Communities: to
contribute to communities and society everywhere the company
operates through involvement in research, culture, the arts, sports
and other facets of life
 81. Discuss possible areas of conflict between shareholder
The decrease of working places may lead to the conflict between
employees and owners, management. The objective of increasing the size
of the business may lead to the conflict between managers, employees,
suppliers and owners and shareholders, as in the short-run this increase
may cause the increase of costs, the decrease of dividends. Managers,
suppliers, employees will agree as this increase may lead to the increase
of the amount of working jobs and sales.

82.What are the main types of determinative factor models in

economic analysis?
• Additive models are used in cases where the resulting indicator is the
sum of several factors:
Y = X1 + X2 + X3 + ..... + Xn
• Multiplicative models are used in cases where the resulting indicator is
the result of several factors multiplication:
Y = X1 * X2 * X3 * ..... * Xn or Y =X1 / X2
• Mixed models - represent different combinations of the previously
considered models.

83. What is the sphere of the additive models implementation? Give

some examples / Сфера применения аддитивных моделей.
Примеры.
Additive models are used in cases where the resulting indicator is the
algebraic sum of several factors: Y = X1 + X2 + X3 + ..... + Xn = ∑ Xi.
These models are often used in balance method of economic analysis. A
good example is the model used for calculating the prime cost of a good
(Cp):
Cp = Cm + W + D + O,
• Cm – material costs
• W – wages (including allocations to social needs)
• D – depreciation and/or amortization
• O – other expenses
Another example is calculation of net working capital:
NWC = Cash and cash equivalents + Inventories + AR – AP.
 84. What is the sphere of the multiplicative models application?
Give some practical examples of their use
Multiplicative models: Y = X1 + X2 + X3 + ..... + Xn. This type of
model is used in cases where the resulting indicator is the result of
several factors multiplication or it could be considered as Y=X1/X2.
These models are used in many time series involving quantities (e.g.
money, wheat production, ...). There might be different examples of this
model application.
E.g., quantity produced (Q) basically depends on productivity of workers
(Pw) and their number (Nw). Q = Pw * Nw.

85. What are practical examples of combined models?

Mixed (combines) models represent different combinations of additive
and multiplicative deterministic models. They are often obtained after
decomposition of other models. They can have many forms. E.g., the
model used for calculation of average annual productive capacity (Nc) is:
Nc = Nh+ (N1*n1) / 12 - (N2*n2) / 12,
• Nh – productive capacity at the beginning of the year
• N1 – productive capacity of newly introduced objects
• n1 – the number of months from introduction of new capacities till
the end of the year
• N2 – commissioned productive capacity
• n2 – the number of months left after commissioning productive
capacities till the year end
Or the model used to determine the profitability of means of production
(Rm): Rm = Rs / (Fe + Kс),
• Rs – profitability of sales
• Fe – capital ratio of fixed assets
• Kc – coefficient of consolidation of fixed assets.

86. For what purpose is transformation of factor models made?

Для чего делается преобразование факторных моделей?
It helps to understand the influence of different factors on the
resulting indicator.
 87.What methods for measuring the influence of factors in the
determinative analysis do you know?
Chain substitution (universal): ∆Y(A) = Yc1 - Y0 (Ycon1 = A1 * B0 * C0; Y0
= A0 * B0 * C0); ∆Y(B) = Yc2-Yc1 (Yc2 = A1 * B1 * C0) and so on until we
find the impact of all factors. Checking: ∆Y = Y1 - Y0 = ∆Y(A) + ∆Y(B)
+ ∆Y(C). Absolute differences method: ∆Y(A) = ∆A * B0 * C0; ∆Y(B) =
A1* ∆B * C0; ∆Y(C) = A1 * B1 * ∆C. Checking the same. There special
steps for cases Y = A * (B - C) and Y = (A - B) *C. Relative differences
method: Increase rate IR = (X1-X0) / X0; ∆Y(A) = Y0 * IR(A); ∆Y(B) =
(Y0-∆Y(A)) * IR(B); ∆Y(C) = (Y0 + ∆Y(A) + ∆Y(B)) * IR(C). Index
method: Y = A * B; Iy= (A1 * B1) / (A0 * B0) => ∆Y = A1 * B1 - A0 * B0;
Iy(A) = (A1 * B0) / (A0 * B0) => ∆Y(A) = A1 * B1 - A0 * B0 and so on for
the others.
88. List advantages and disadvantages of determinative factor
analysis
Advantages: 1)both objective and subjective attributes can be used; 2) it
is fairly easy to do, inexpensive; 3) here is flexibility in naming and using
dimensions
Disadvantages:1)it is hard to decide how many factors to include;
2)interpretation of the meaning of the factors is subjective; 3) depend on
the order of the factors (if the order changes, the result will be different
too); 4) sometimes not accurate

89. Explain the term «The time value of money»

The time value of money is the principle that the purchasing power of
money can vary over time; money today might have a different
purchasing power than money a decade later. The value of money at a
future point in time might be calculated by accounting for interest earned
or inflation accrued. The time value of money is the central concept in
finance theory. However, the explanation of the concept typically looks
at the impact of interest, and for simplicity, assumes that inflation is
neutral.
E.g., £100 invested for one year, earning 5% interest, will be worth £105
after one year; therefore, £100 paid now and £105 paid exactly one year
later both have the same value to a recipient who expects 5% interest.
That is, £100 invested for one year at 5% interest has a future value of
£105.
 90. What is future value of money?
Future value is the value of an asset at a specific date. It measures the
nominal future sum of money that a given sum of money is "worth" at a
specified time in the future assuming a certain interest rate, or more
generally, rate of return; it is the present value multiplied by the
accumulation function. The value does not include corrections for
inflation or other factors that affect the true value of money in the future.
Future value of money at some point of time is counted as:
• for an asset with simple annual interest = Original Investment * (1 +
(interest rate * number of years))
• for an asset with interest compounded annually = Original Investment *
((1 + interest rate) ^ number of years).
It is important to remember that simple interest is always based on the
present value, whereas compounded interest means that the present value
grows exponentially each year.

91. What is the discounted value of expected net receipts?

These are future receipts after deducting any related payments. E.g. if
you are likely to receive $1,200 one year from today, but will have to pay
a fee of $200 at the time of the receipts, the expected net receipts will be
$1,000.
We calculate the present value by discounting the future amounts.
Discounting means
1) removing a specified amount of interest, or
2) adjusting for the time value of money.
The concept is that receiving $1,000 in the future is less valuable than
receiving $1,000 today.
If we assume that the time value of money is 10% per year, a net receipt
of $1,000 one year from today will have a present value of $909. In other
words, we discounted the future value of $1,000 by $91. With a time
value of money of 10%, the $909 can be invested today and will grow by
$91 ($909 * 10%) to be $1,000 in one year. Receiving a net amount of
$1,000 in two years will have a present value of only $826. The reason is
that $826 invested today at a compounded rate of 10% will grow to
$1,000 in two years.
Discounted (present) value = Future value * 1 / (1 + interest rate) ^
number of years from now till future point of time.
 92. What is the difference between Present Value (PV) and Net
Present Value (NPV)?
Present value (PV) is the result of discounting future amounts to the
present. E.g., a cash amount of $10,000 received at the end of 5 years
will have a present value of $6,210 if the future amount is discounted at
10% compounded annually.

Net present value (NPV) is the present value of the cash inflows minus
the present value of the cash outflows. E.g., let's assume that an
investment of $5,000 today will result in one cash receipt of $10,000 at
the end of 5 years. If the investor requires a 10% annual return
compounded annually, the net present value of the investment is:

NPV = Co + C1 / (1 + i) ^ n = - $5,000 + $10,000 / (1+ 0,1) ^ 5 =

$1,210. This is the result of the present value of the cash inflow $6,210
(from above) minus the present value of the $5,000 cash outflow (since
the $5,000 cash outflow occurred at the present time, its present value is
$5,000).

93. What are fixed costs, variable costs? / Что такое постоянные
и переменные издержки?
Fixed cost is a cost that tends to remain unchanged regardless of the level
of activity undertaken. Fixed costs are expenses that do not change with
an increase or decrease in the amount of goods or services produced. E.g.
a company leases a building. If a company has to pay $10,000 each
month to cover the cost of the lease but does not manufacture anything
during the month, the lease payment is still due in full.

Variable cost is a corporate expense that varies with production output.

Variable costs are those costs that vary depending on a company's
production volume; they rise as production increases and fall as
production decreases. E.g. a company may have variable costs associated
with the packaging of one of its products. As the company moves more
of this product, the costs for packaging will increase. Conversely, when
fewer of these products are sold the costs for packaging will decrease.

Fixed costs and variable costs comprise total cost.

 94. What is an opportunity cost?
Opportunity cost is the cost of an alternative that must be forgone in
order to pursue a certain action. In other words, the benefits you could
have received by taking an alternative action.
E.g.: Say you invest in a stock and it returns a paltry 2% over the year. In
placing your money in the stock, you gave up the opportunity of another
investment - say, a risk-free government bond yielding 6%. In this
situation, your opportunity costs of investment in stocks are 4% (6% -
2%).

95.What is a sunk cost?

A sunk cost is a cost that has already been incurred and is non-
recoverable. It should be ignored in decisions about future actions.

96. What are relevant and non-relevant costs?

Relevant costing refers to costs specific to management decisions.
Relevant costing is typically used for the purpose of decision making. A
relevant cost may include:
Future Costs – decisions are made for the future. Decisions made now
cannot alter the past. Cost (also known as sunk cost) incurred in the past
are irrelevant to any decision being made now. Note Costs incurred
include those costs which may have been agreed by contract but which
have not yet been paid or received.
Incremental Costs – A relevant cost is one, which arises as a direct
consequence of a decision. Only costs which will differ under some or all
of the available opportunities should be considered.
A non-relevant is a cost, which unaffected by management's decisions.
Such costs can be either positive or negative and may even turn out to be
a relevant cost in certain situations. For example, if a company bought an
off-the-shelf software program but it did not work as intended and cannot
be returned, the cost incurred (sunk cost) becomes irrelevant regardless
of management's decision.
 97.    What
is meant by the term `contribution`?
Contribution is a cost accounting concept that allows a company to
determine profitability of individual products. If business makes more
than one product or provides more than one service, contribution costing
shows whish product or service is making the greatest or least
contribution to overheads or profit. Contribution per product = Product
Revenue - Product Variable Costs

Only the variable costs are charged to the cost units. The variable cost
per unit is known as the marginal cost. The difference between the total
sales value and the total variable costs is known as the contribution: Sales
value – Variable costs = Contribution

Contribution represents the contribution towards covering the fixed costs.

Total contribution – Fixed costs = Profit/loss.

98. What is the marginal cost equation? / Уравнение предельной

стоимости
Marginal Cost is the cost that results from a one unit change in the
production rate.
MC = change in total costs / change in output = ΔTC / ΔQ. Total cost
consists of variable and fixed cost. Because any change in total cost is
also an equivalent change in total variable cost (fixed cost does not
change), marginal cost can be calculated using total variable cost, too:
marginal cost = change in total variable cost / change in quantity of
output.

99.List main assumptions of marginal analysis / Перечислите

главные допущения предельного анализа
The main assumption of marginal (contribution) analysis:
• Cost classification: costs can be divided into fixed and variables
categories.
• VC vary in direct proportion to sales
• FC are to remain constant
• All cost-volume-profit relationship are linear
• Sales prices will not change with changes in volume.
 100.What is BEP analysis? / Что такое анализ точки
безубыточности?
Break-even point (BEP) analysis determines the point at which revenue
received equals the costs associated with receiving the revenue. Break-
even analysis calculates a margin of safety, the amount that revenues
exceed the break-even point. This is the amount that revenues can fall
while still staying above the break-even point.

E.g., if it costs $50 to produce a widget, and there are fixed costs of
$1,000, the break-even point for selling the widgets would be:
• if selling for $100: 20 Widgets (calculated as 1000 / (100 - 50) = 20)
• if selling for $200: 7 Widgets (Calculated as 1000 / (200 - 50) = 6.7)

101.What is break-even chart? / Балансовый график

рентабельности?
A break-even chart is a tactical tool used to scheme the financial returns
of a business unit against sales or time to establish the point when sales
output is equivalent to revenue generated. Break-even analysis technique
is widely used by management accountants and production management.

102. What is meant by the terms: a) Break-even point, b) Margin of

safety / Что такое точка безубыточности/запас прочности
The purpose of breakeven analysis is to identify the break-even point
(BEP), which is “the level of activity at which there is neither profit nor
loss”. In other words, the break-even point is where total contribution =
total fixed costs or total revenue = total costs.

Margin of safety (MoS) is the extent by which actual or projected sales

exceed the break-even sales. It may be calculated as the difference
between actual or projected sales and the break-even sales:
• MoS in units = Profit / Contribution per unit
• MoS in sales value terms = Profit * Sales / Contribution
 103. What is the formula for calculating a) The break-even point
position in sales value terms, b) The break-even point position in
units, c) The margin of safety in sales value, d) The margin of
safety in units
Break-even point (BEP) is the level of activity at which there is neither
profit nor loss.
• BEP = Contribution [Sales Value – Variable costs] – Fixed costs = 0
• BEP in units = Fixed costs / Contribution per unit [price – variable
costs per unit]
• BEP in sales value terms = Fixed costs * Sales value / Contribution
Margin of safety (MoS) is the extent by which actual sales exceed the
break-even sales.
• MoS (in absolute value) = (Sales – BEP) / Sales * 100%
• MoS in units = Profit / Contribution per unit

• MoS in sales value terms = Profit * Sales / Contribution

104. List main characteristics of decision-making data.

105.What are the main financial statements? What is their

purpose?
• Statement of Financial Position (Balance Sheet) shows entity’s
financial position at a given date. It shows what the company owns
and how much it owes.
• Income Statement shows entity's financial performance in terms of
net profit (loss) over a specified period.
• Cash Flow Statement shows movement in cash and bank balances
over a period, reveals net decreases or increases of cash for the
reporting period.
• Statement of Changes in Equity (of Retained Earnings) details the
movement in owners' equity over a period. This statement reveals
what the company keeps and does not distribute to the owners and
how that amount changes over the reporting period.
Подробнее см. в билете 69.
 106.What is meant by `Financial statement position`?
Statement of Financial Position (Balance Sheet) summarizes a company's
assets, liabilities and shareholders' equity at a specific point in time.
Balance Sheet helps to answer:
• What we have? Current assets - can be converted to cash or used to
pay current liabilities within 12 months (cash, short-term
investments, accounts receivable inventory); long-term assets –
company's property, equipment and other assets usable for more
than 1 year, minus depreciation (long-term investments; property,
plant and equipment; intangible assets-goodwill, copyright)
• What we owe? Current liabilities – obligation expected to be paid
off within a year (short-term loans, accounts payable, current
portion of long-term debt). Long-term liabilities – obligations of
business expected to continue more than 1 year (loans and mortgage
payable)
• What we're worth? Stockholder's equity (common stocks; additional
paid-in capital, retained earnings)
Balance sheet equations:
• Assets = Liabilities + Shareholder's equity
Shareholder's equity = Net Assets
• Net assets = Assets – Liabilities
107.What is meant by the terms `current and `non-current` assets
in a company`s balance sheet? Give some example of current
and `non-current assets
Assets are resources a company owns. They consist of both current and
noncurrent resources.

Current assets are ones the company expects to convert to cash or use in
the business within one year of the balance sheet date: Cash, Accounts
receivable (AR), Inventory, Prepaid expenses.

Non-current assets are ones the company reckons it will hold for at least
one year: Fixed assets, Long-term investments, Intangible assets.
 108.What is meant by the terms `long –term` and `short-term`
liabilities in a company`s balance sheet? Give some example of
long –term and short-term liabilities
Long-­‐term liabilities are existing obligations or debts due after one year
or operating cycle, whichever is longer. They appear on the balance sheet
after total current liabilities and before owners' equity. E.g.: mortgage
payable, bonds payable, pension, deferred income taxes.
The values of many long-­‐term liabilities represent the present value of
the expected future cash outflows. Short-term or current liabilities are
company's debts or obligations that are due within one year. Current
liabilities appear on the company's balance sheet and include for example
Short-term debt, AP, Accrued liabilities, Income taxes payable, Wages.
109.Which main international accounting standard covers the
presentation of financial reporting?
IAS 1 Presentation of Financial Statements sets out the overall
requirements for financial statements, including how they should be
structured, the minimum requirements for their content and overriding
concepts such as going concern, the accrual basis of accounting and the
current/non-current distinction.
The standard requires a complete set of financial statements to comprise
a statement of financial position, a statement of profit or loss and other
comprehensive income, a statement of changes in equity and a statement
of cash flows.
110.What is meant by the term `equity`?
In accounting and finance, equity is the residual value or interest of the
most junior class of investors in assets, after all liabilities are paid; if
liability exceeds assets, negative equity exists. In an accounting context,
shareholders' equity represents the remaining interest in the assets of a
company, spread among individual shareholders of common or preferred
stock; a negative shareholders' equity is often referred to as a positive
shareholders' deficit.

The term's meaning depends very much on the context. In finance, in

general, you can think of equity as ownership in any asset after all debts
associated with that asset are paid off. For example, a car or house with
no outstanding debt is considered the owner's equity because he or she
can readily sell the item for cash. Stocks are equity because they
represent ownership in a company.
 111.Name main items of income statement (comprehensive income
statement)
• Net Sales • Pretax Income
• Cost of Sales • Income Taxes
• Gross Profit • Special Items or
• Selling, General and Extraordinary Expenses
Administrative Expenses • Net Income
• Operating Income • Comprehensive Income
• Interest Expense
112.Name main items of cash flow statement
The Statement of Cash Flows describes the cash flow into and out of the
business. Its focus is on the types of activities that create and use cash.
Cash flows in the statement are divided into 3 areas:
• Operating activities constitute the revenue – generating activities of a
business:
o cash receipts from customers
o cash paid to suppliers
o cash paid to employees
o interest paid
o income taxes paid
------------------
Net cash from operating activities
• Investing activities constitute payments made to acquire long-terms
assets, as well as cash received from their sale:
o purchase of property, plant, and equipment
o proceeds from sale of equipment
------------------
Net cash used in investing activities
• Financing activities constitute activities that will alter the equity or
borrowings of a business:
o proceeds from issuance of common stock
o proceeds from issuance of long-term and short-term debt
o dividends paid
------------------
Net cash used in financing activities
------------------
Net increase in cash and cash equivalents
 113.How would you define cash generated by a business during an
accounting period?
Cash generated by a business during an accounting period refers to the
amount of cash a company generates from the revenues it brings in,
excluding costs associated with long-term investment on capital items or
investment in securities. The most important source for cash generation is
the operating activities of the company.
The IFRS define operating cash flow as cash generated from operations
less taxation and interest paid, investment income received and less
dividends paid gives rise to operating cash flows. To calculate cash
generated from operations, one must calculate the difference between
cash generated from customers and cash paid to suppliers.
Operating cash flow is important because it indicates whether a company
is able to generate sufficient positive cash flow to maintain and grow its
operations, or whether it may require external financing. The company
can also generate cash generate cash by receiving it from issuing stock
and bonds, or by gaining proceeds from the sale of long-term assets.

114.Why are notes used?

Notes are additional information provided in a company's
financial statements. Notes to the financial statements report the
details and additional information that are left out of the main
reporting documents, such as the balance sheet and income
statement. This is done mainly for the sake of clarity because
these notes can be quite long, and if they were included, they
would cloud the data reported in the financial statements.

It is very important for investors to read the notes to the financial

statements included in a company's periodic reports. These notes
contain important information on such things as the accounting
methodologies used for recording and reporting transactions,
pension plan details and stock option compensation information -
all of which can have material effects on the bottom-line return
that a shareholder can expect from an investment in a company.
 115. What opinion does an independent auditor usually express
about a company`s financial statements?
The auditor's report is a formal opinion issued by an independent auditor
on whether the information presented is correct and free from material
misstatements.
Auditor makes 4 types of reports:
• Unqualified Opinion – when the Financial Statements give a true and
fair view in accordance with the financial reporting framework used
for their preparation and presentation.
• A Qualified Opinion report – when the financial statements are
materially misstated due to misstatement in one particular account
balance, class of transaction or disclosure that does not have pervasive
effect on the financial statements.
• An Adverse Opinion report – when the financial statements are
materially misstated and such misstatements have pervasive effect on
the financial statements.
• A Disclaimer of Opinion is issued when:
o the auditor is not independent
o there is conflict of interest
o the client does not let the auditor obtain sufficient appropriate
audit evidence
o the client has a substantial problem of going concern
o there are significant uncertainties in the business of client.

116. Give explanation why the absolute data shown in financial

statements may need to be interpreted? / Дайте объяснение,
почему абсолютные данные, приведенные в финансовых
отчетах, нужно интерпретировать?
Comparative financial statements can use both absolute amounts and
percentages to provide meaningful analysis. This type of analysis puts
absolute changes and percentage changes in perspective. No changes can
be computed if there is no base figure available and no meaningful
change can be calculated if one figure is positive and the other is
negative.
 117. What is the difference between horizontal and vertical analysis
/ Разница между вертикальным и горизонтальным анализом
The two simplest ways to analyze financial statements are vertically and
horizontally.

A vertical analysis shows the relationships among components of one

financial statement, measured as percentages. On balance sheet, each
asset is shown as a percentage of total assets; each liability or equity item
is shown as a percentage of total liabilities and equity. On statement of
profit and loss, each line item is shown as a percentage of net sales.

A horizontal analysis provides with a way to compare your numbers from

one period to the next, using financial statements from at least two
distinct periods. Each line item has an entry in a current period column
and a prior period column. Those two entries are compared to show both
the dollar difference and percentage change between the two periods.

118.    What
is ratio analysis? / Анализ (со)отношений
Ratio Analysis is a form of Financial Statement Analysis that is used to
obtain a quick indication of a company's financial performance in several
key areas. The ratios are categorized as Liquidity ratios (current, quick
and cash rations); Capital Structure ratios; Efficiency Ratios; Profitability
ratios; Investment Valuation Ratios

The computation of ratios facilitates the comparison of firms which differ

in size. Ratios can be used to compare a firm's financial performance
with industry averages. In addition, ratios can be used in a form of trend
analysis to identify areas where performance has improved or
deteriorated over time.

Because Ratio Analysis is based upon Accounting information, its

effectiveness is limited by the distortions which arise in financial
statements (e.g. because of inflation). Therefore, Ratio Analysis should
only be used as a first step in financial analysis, to obtain a quick
indication of a firm's performance and to identify areas which need to be
investigated further.
 119. Main categories used for classifying financial ratios / Основные
категории для классификации финансовых коэффициентов
For ratio analysis the following categories of financial ratios are used:

• Liquidity ratios: company liquidity refers to the ability to meet short

term obligations; analysis of net current assets (current assets –
current liabilities). Current, quick and cash rations are calculated.
• Efficiency ratios reflect how well the firm’s assets are being
managed: total assets turnover, inventory turnover, AR turnover,
days in inventory, AR period
• Leverage ratios: financial structure ratios show the extent to which a
firm is relying on debt to finance its investments and operations, and
how well it can manage the debt obligation
• Profitability ratios measure the results of business operations and
performance of the firm
• Market value ratios help to measure company`s activity and
efficiency at security market

120. Why is liquidity important and what main ratios may be used
to assess it / Важность ликвидности и какие отношения могут
быть использованы для ее оценки
Liquidity ratios are used to determine a company’s ability to meet its
short-term debt obligations. Investors often take a close look at liquidity
ratios when performing fundamental analysis on a firm.
3 main liquidity ratios are:
5. Current Ratio = Current Assets / Current Liabilities - measures a
company’s current assets against its current liabilities
6. Quick Ratio = (Cash & Cash Equivalents + Short-Term Investments +
AR) / Current Liabilities - focuses on cash, short-term investments and
accounts receivable
7. Cash Ratio = Cash & Cash Equivalents / Current Liabilities - looks at
assets that can be easily used to pay off short-term debt; disregards
receivables and short-term investments.
 121. How would you assess whether Assets Turnover ratio were
good or bad? / Как бы вы оценили, эффективен или нет
коэффициент оборота активов
The Asset Turnover ratio shows amount of sales or revenues generated
per dollar of assets. This ratios is an indicator of the efficiency with
which a company is deploying its assets.
Asset Turnover = Sales or Revenues/Total Assets
Generally speaking, the higher the ratio, the better it is, since it implies
the company is generating more revenues per dollar of assets. But since
this ratio varies widely from one industry to another, comparisons are
only meaningful when they are made for different companies in the same
sector.
A high ratio implies either strong sales or ineffective buying. High
inventory levels are unhealthy because they represent an investment with
a rate of return of zero. It also opens the company up to trouble should
prices begin to fall.

122. What is meant by the `Trade Debtor Collection Period`? /

Период погашения дебиторской задолженности
Debtor Collection Period indicates the average time taken to collect trade
debts. It enables the enterprise to compare the real collection period with
the granted/theoretical credit period.
Debtor Collection Period = (Average Debtors / Credit Sales) x 365 or
360. Where Average Debtors = (debtors at the beginning of the year +
debtors at the end of the year) / 2 or Debtors + Bills Receivables)

123. What is meant by the `trade creditor payment period`? / Что

понимают под сроком оплаты кредиторской задолженности
поставщикам?
This ratio indicates how the company uses short term financing to fund
its activities.

Creditors days = Total Creditors/Cost of sales * 365 or 360

The average trade creditors amount is usually just an average of the

opening and closing balances. The trade creditors should be related to
credit purchases, although this information will not often be available.
 124. What investment ratios do you know / Инвестиционные
отношения
Investment valuation ratios help to measure company’s activity and
efficiency at security market.

Earnings per common share (EPS) = (Profits after taxes – Preferred

dividend) / number of common share outstanding

Dividends per common share (DPS) = Sum of dividends over a period /

number of common shares outstanding
Price to earnings ratio (P/E) = Current market price per share / Earnings
per share

125. Outline the main steps you would take if you were asked to
appraise the financial performance of a company using its
financial statements / Наметить в общих чертах основные
шаги, которые вы приняли бы, если бы вас попросили оценить
финансовые показатели компании, используя финансовые
отчеты
d. Acquire the company’s financial statements for several years
e. Quickly scan all of the statements to look for large or significant
moments in specific items
f. Review the notes accompanying the financial statements for additional
information that may be significant to the analysis
g. Examine the balance sheet. Look for large changes in the overall
components of the company’s assets, liabilities or equity
h. Examine the income statement. Look for trends over time. Calculate
and graph the growth of the following entries
i. Examine the cash flow statement, which gives information about the
cash inflows and outflows from operations, financing, and investing
activities
j. Calculate financial ratios in each of the following categories
k. Obtain data for the company’s key competitors, and data about the
industry
l. Review the market data you have about the company’s stock price
m. Review the dividend payout
n. Review all of the data that you have generated. Prepare a short
conclusion
 126. Why should a company use a mixture of financial performance
indicators and non-financial ones? / Почему компания должна
использовать как финансовые, так и нефинансовые
показатели?
Financial performance measures are traditionally backward looking. This
is not suitable in today's dynamic business environment. There is a
number of areas that are particularly important for ensuring the success
of a business and where the use of non-financial performance indicators
plays a key role. These include: the management of human resources,
product and service quality, brand awareness and company profile.

The solution is to use both financial and non-financial performance

indicators:
8. Financial performance indicators - it is still important to monitor
financial performance, e.g. using ROCE (Return On Capital
Employed), EBITDA.
9. Non-financial performance indicators - these measures will reflect the
long-term viability and health of the organization.

127.List main problems associated with the exclusive use of

financial performance indicators to monitor performance /
Проблема использования исключительно финансовых
индикаторов для оценки деятельности фирмы
1) Short-termism: Linking rewards to financial performance may
tempt managers to make decisions that will improve short-term
financial performance but not long-term profitability.
2) Internal focus: Financial performance measures tend to have an
internal focus. In order to compete successfully it is important
that external factors are also considered.
3) Manipulation of results: In order to achieve target financial
performance (and hence their reward), managers may be tempted
to manipulate results.
4) Do not convey the whole picture regarding the factors that drive
long-term success and maximization of shareholder wealth, e.g.
customer satisfaction, ability to innovate, quality.
5) Backward looking
 128. What models for evaluating financial and non-financial
performance do you know?
Models for measuring financial and non-financial performance:
• Kaplan and Norton's balanced scorecard
• The performance pyramid
• Fitzgerald and Moon's building block model
• The performance prism
The benefits of these models:
• financial and non-financial performance measures are included, linked
to corporate strategy
• include external as well as internal measures
• include all important factors regardless of how easy they are to
measure
• show clearly the tradeoffs between different dimensions of
performance
• show how measures will motivate managers and employees.

129. What is BSC and why is it important for entity strategic

analysis?
The Balanced Scoreсard (BSC) is a strategic planning and management
system that is used extensively in business and industry, government, and
nonprofit organizations to align business activities to the vision and
strategy of the organization, improve internal and external
communications, and monitor organization performance against strategic
goals. The critical characteristics that define a Balanced Scorecard:
• its focus on the strategic agenda of the organization concerned
• the selection of a small number of data items to monitor
• a mix of financial and non-financial data items.
Important because:
• Articulate the business's vision and strategy
• Identify the performance categories that best link the business's vision
and strategy to its results (e.g., financial performance, operations,
innovation, employee performance)
• Develop effective measures and standards, establishing both short-
term long-term targets
• Collect and analyze performance data and compare actual results with
desired performance
 130. Describe main perspectives of BSC
• The Learning and Growth Perspective includes employee training and
corporate cultural attitudes related to both individual and corporate
self-improvement. In a knowledge-worker organization, people are
the main resource.
• The Business Process Perspective refers to internal business processes.
Metrics based on this perspective allow the managers to know how
well their business is running, and whether its products and services
conform to customer requirements (the mission).
• The Customer Perspective. These are leading indicators: if customers
are not satisfied, they will eventually find other suppliers that will
meet their needs.
• The Financial Perspective. Timely and accurate funding data will
always be a priority, and managers will do whatever necessary to
provide it. In fact, often there is more than enough handling and
processing of financial data.
131. Key benefits of BSC using
The balanced scorecard method is looking at four aspects of a company's
performance, so that you really do get a balanced view of company
performance. Unlike traditional financial methods, BSC gives a full
picture as to whether a company is meeting its objectives. While a
company is doing well financially, it may be that customer satisfaction is
down, employee training is inadequate etc.

The immediate future isn't the only thing being evaluated. Often, when
an accountant sees the financial bottom line (perhaps the company isn't
doing well), suggestions are given that are immediate, but do not look at
the long-term. Using BSC allows for stakeholders to determine the health
of short, medium, and long term objectives at a glance.

A company can be sure that any strategic action implemented matches

the desired outcomes. Will raising the price of a product help the bottom
line of the company in the long run? It might, for instance, if the
customer is satisfied with that product.