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PROFIT AND LOSS ACCOUNT - accounting

3/31/2020

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Profit and Loss account or Income Statement

Profit and loss account or also known as the income statement is one of the major financial statements (others include: balance sheet, the cash flow statement, the statement of stockholder’s equity).
Profit and loss account shows the profitability of a company in a given period of time.
There are certain elements in the P&L which refer to revenues or gains from a certain type of activity or expenses and losses:
  1. Revenues and Gains
  1. From operating activity (core activity)
  2. Investing activity
  3. Financial activity
  1. Expenses and losses
  1. From operating activity
  2. Investing activity
  3. Financial activity
There are two formats to prepare the P&L:
  1. Single-step – which uses this formula to arrive at net income: Net income = (Revenues + Gains) – (Expenses and Losses)
  2. Multiple-step  - which segregates the operating revenues and operating expenses from the non-operating revenues and expenses. It shows the gross profit (net sales minus the cost of goods sold).
 
Take this short quiz to check what you already know:

1. Amounts earned by a company in its main operating activities are:  a. Revenues 
​b.  
Gains

2. A company sells a car that is no longer used in its business. The amount received is more than the book value of the asset. The company will report a(an):  
a. Expense
b. 
Gain
c. 
Loss
d. 
Revenue 

3. Is a company’s Interest Expense:
a. an operating expense or
b. a non-operating expense?

4. Net Sales minus the Cost of Goods Sold (COGS) equals:
a. Gross profit
b. Net income

5. Gross profit minus Operating expenses  is also known as:
a. Net income
b. Operating income

Now check your answers below.

Would you like to learn more about accounting in English?
Contact me.

 
 

Key: 1. a/ 2 b /  3 b/  4 a/ 5 b

Glossary:
Profit and loss account (P&L) or Income Statement – Rachunek Zysków I Strat
Profitability – rentowność
Revenues – przychody
Gains – zyski finansowe
Expenses – wydatki
Losses – straty
Operating activity – działalność operacyjna
Investing activity – działalność inwestycyjna
Financial activity – działalność finansowa
Single-step – format uproszczony
Multiple-step – format kalkulacyjny
Net income – przychody netto
Cost of goods sold – koszt sprzedanych towarów
Book value – wartość księgowa
Interest - odsetki
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What is master budget?

12/9/2019

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What is Master Budget?
 it is a strategy that documents expected future sales, productions levels, purchases, future expenses incurred, capital investments, etc.

Find out how to calculate Master Budget

Read the text:
 
How to prepare a master budget? Start with your sales.
  • come up with a realistic estimate of next year’s sales.
  • what quantity of goods must your factory produce?
  • figure out the direct materials, direct labor, and overhead needed to make all these goods.
  • estimate your cash flows. Next year’s cash flows. Start with cash payments: how much will you need to pay in order to make all the goods that you plan to produce next year? Then look at inflows: Where will you generate the cash inflows needed to support production? Will you need to borrow money next year?
  •  prepare the rest of next year’s financial statements.
 
EX. 1
Match the words in bold with their definitions below:
  1. …………………………………  e.g. Profit and Loss Account, Balance Sheet
  2. ……………………………….. to produce, to bring
  3. ………………………………… the amount or number of something
  4. ………………………………… the amount of money moving into and out of a business
  5. …………………………………  the amount of money moving into a business
  6. ……………………………….. to guess or calculate the cost, size, value etc.

check your answers below.

Glossary:
master budget - budżet łączny
expected sales - przewidywana sprzedaż
purchases - zakupy
expenses incurred - poniesione wydatki/nakłady pieniężne
to estimate - oszacować
direct labor - koszty bezpośrednie robocizny
overheads - koszty ogólne, pośrednie 
cash flows - przepływy pieniężne
financial statements - sprawozdania finansowe np.: bilans, RZiS

Klucz:
1. financial statements, 2. generate, 3. quantity, 4. cash flows, 5. inflows, 6. estimate

Are you an accountant? Do you need to speak English at work? Are you preparing budgets or financial reports? Contact me to schedule your free trial lesson.
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What is depreciation of tangible assets?

11/20/2019

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English for Finance - Depreciation

Depreciation

DEPRECIATION VS. AMORTIZATION
​

When do accountants use the term ‘depreciation’ or ‘amortization'?

When they talk about different types of fixed assets (fixed – assets which are not likely to be converted quickly into cash).

Depreciation – it is a reduction in the value of a tangible asset (e.g. land, machinery, vehicles, equipment, inventory) over time due to wear and tear.

Amortization – it is a reduction in the value of an intangible asset (the one that is not physical in nature e.g. Goodwill, brand recognition, intellectual property) over time.
 
METHODS OF DEPRECIATION

The popular methods of depreciation include:

Straight-line – depreciation is in equal amounts over the estimated life of the asset.

Double Declining Balance - is an accelerated method, which counts as an expense twice as much of the asset's book value each year compared to straight-line depreciation.

Unit-of-production -  is usesuful when an asset's value is related to the number of units it produces and not necessariliy the number of year it is in use.
 
EXERCISE
Let’s compute depreciation using the Straight-line method:
 
Cost – how much the company paid for the asset
Salvage Value (residual or scrap value) – the estimated book value of an asset after depreciation is complete
Estimated life of asset / Useful life – the estimated number of years the asset is likely to remain in service
Annual depreciation – yearly depreciation
 
e.g. The company purchased a car for PLN 40.000 – cost of asset, estimated life – 5 years, estimated salvage value – PLN 8.000
 
Cost – Salvage Value/Estimated life  = Annual Depreciation
PLN 40.000 – PLN 8.000/5 years = PLN 6.000
 
Therefore the annual depreciation of this tangible asset (a car) will amount
PLN 6.000.
 
Below you will find the glossary of terms (EN-PL) and a video explaining the above mentioned methods of depreciation:
​
Glossary – EN – PL:
Depreciation - amortyzacja środków trwałych materialnych
Amortization - amortyzacja środków trwałych niematerialnych i prawnych
Assets - majątek, środki 
Fixed asset - środek trwały
Tangible asset - środek trwały materialny
Intangible asset - środek trwały niematerialny
Reduction in value - spadek wartości 
Goodwill - wartość firmy
Straight-line depreciation - metoda liniowa amortyzacji
Declining-balance depreciation - metoda degresywna amortyzacji
Units-of-production depreciation - metoda amortyzacji przypadająca na jednostkę wyprodukowaną
To compute - obliczyć
To purchase - zakupić
Salvage / scrap / residual value - wartość umorzeniowa, cena po amortyzacji
Estimated life of an asset / Useful life - czas użyteczności środka
Annual depreciation - amortyzacja roczna
 
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Prime Courses Katarzyna Sawicz
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