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Liabilities are the firm’s debts and obligations – what it owes to others.
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Owner’s equity is the difference between a firm’s assets and its liabilities – what would be left over for the firm’s owners if its assets were used to pay off its liabilities.
The relationship among these three terms is the following:
Owner’s equity = assets – liabilities
(The owner’s equity is equal to the assets minus the liabilities)
For a sole proprietorship or partnership, the owner’s equity is shown as the difference between assets and liabilities. In a partnership, each partner’s share of the ownership is reported separately by each owner’s name. For a corporation, the owner’s equity is usually referred to as stockholders’ equity or shareholders’ equity. It is shown as the total value of its stock, plus retained earnings that have accumulated to date.
By moving the above three terms algebraically, we obtain the standard form of the accounting equation.
Assets = liabilities + owners’ equity
(The assets are equal to the liabilities plus the owners’ equity)
A balance sheet
A balance sheet (or statement of financial position), is a summary of a firm’s assets, liabilities, and owners’ equity accounts at a particular time, showing the various money amounts that enter into the accounting equation. The balance sheet must demonstrate that the accounting equation does indeed balance. That is, it must show that the firm’s assets are equal to its liabilities plus its owners’ equity. The balance sheet is prepared at least once a year. Most firms also have balance sheets prepared semiannually, quarterly, or monthly.
An income statement
An income statement is a summary of a firm’s revenues and expenses during a specified accounting period. The income statement is sometimes called the statement of income and expenses. It may be prepared monthly, quarterly, semiannually, or annually. An income statement covering the previous year must be included in a corporation’s annual report to its stockholders
The importance of the above two statements
The information contained in these two financial statements becomes more important when it is compared with corresponding information for previous years, for competitors, and for the industry in which the firm operates. A number of financial ratios can also be computed from this information. These ratios provide a picture of the firm’s profitability, its short-term financial position, its activity in the area of accounts receivables and inventory, and its long-term debt financing. Like the information on the firm’s financial statements, the ratios can and should be compared with those of past accounting periods, those of competitors, and those representing the average of industry as a whole.
Answer the questions:
- What is accounting? Give a short definition.
- It is possible to manage a business operation without accurate and timely accounting information?
- Who needs accounting information? Explain why.
- What is the basis for accounting process?
- State (изложите) the standard form of the accounting equation.
- What is the balance sheet? Give a short definition.
- What must a balance sheet show?
- What is an income statement?
- What can be computed from the information contained in a balance sheet and an income statement?
- Do the ratios computed from this information provide a picture of a firm’s profitability and its financial position?
- Is this information for competitors?
DEFINITION OF MANAGEMENT
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VOCABULARY
| definition management base science scientific knowledge provide apply application area require certain ability skill here is depending on employ a number of particular responsible owner sole proprietorship the only achieve goal resource primary be concerned financial human equipment product assembly line house employee assets content variety of incentive pay flexible recreational facilities lengthy paid vacation inexpensive etc. = cetera fund meet obligations grocery store obtain customer wholesaler buy borrow lend tuition income endowment grant utility bill insurance premium transaction increasingly environment consumer market competitor generate realize specific complex goods service | Определение управление, руководство, менеджмент основывать наука научный знание обеспечивать, давать применять применение область требовать определенный способность мастерство, умения (мн.число) вот в зависимости от нанимать ряд, множество особый, специфический ответственный владелец единоличная собственность; частное предприятие с одним владельцем; предпринимательство единственный достигать цель ресурс, источник основной, оптимальный заниматься, иметь дело с чем-либо финансовый человеческий, людской оборудование продукт, продукция конвейер размещать, вмещать работник, служащий активы, имущество предприятия довольный, удовлетворенный ряд, множество стимул, побудительный мотив, мотивация зарплата гибкий места отдыха и развлечений длительный оплачиваемый отпуск недорогой и т.д. фонд, денежные средства выполнять обязательства продовольственный магазин получать покупатель, постоянный клиент оптовик покупать занимать ссужать, давать взаймы плата за обучение доход пожертвование, благотворительный взнос субсидия, безвозвратная ссуда предприятие коммунального обслуживания счет страховая премия (финансовая) операция, сделка все более (окружающая) среда потребительский рынок конкурент возникать, появляться осознать, понять конкретный сложный товар, товары услуга |
Management is based on scientific theories and today we can say that it is a developing science.
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But knowledge of theories and principles doesn’t provide practical results. It is necessary to know how to apply this knowledge. Practical application of knowledge in the management area requires certain abilities or skills. Here is an example:
Depending on its size, an organization may employ a number of specialized managers who are responsible for particular areas of management. A very large organization may employ many managers, each responsible for activities of one management area. In contrast, the owner of a sole proprietorship may be the only manager in the organization. He or she is responsible for all levels and areas of management.
What is important to an organization is not the number of managers it employs but the ability of these managers to achieve the organization’s goals, and this ability requires a great skill.
In other words, the management is the process of coordinating the resources of an organization to achieve the primary organizational goals.
MAIN RESOURCES
Managers are concerned with the following main resources:
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