How to Evaluate a Company's Performance
ACCOUNTING: is the practice of collecting detailed records on a company’s business activities and
presenting them in a clear form that the company’s management can easily understand
Accountants are responsible for recording financial activity, and company’s business records are known
as accounts.
accounts : common collocations:
accounts payable: bills or expenses that a company owes, but has not yet paid .
accounts receivable: payments that a company is owed, but has not yet received.
debit: a cost or charge paid by a company for purchase
to debit an account: to transfer money OUT of an (bank) account
credit: a sum of money transferred to a company or individual.
to credit an account: to transfer money INTO of an (bank) account
transaction: a single financial or business dealing. It usually involves the delivery of goods or services in
exchange for payment .
BOOKKEEPING: the practice of making detailed records of a company’s business transactions, including
all flows of money in and out of the company and changes in the goods or property that it owns.
bookkeeper: a person whose job is to keep an accurate record of the accounts of a business
ledger: or general ledger is a book/computer file where a company’s financial activities are recorded.
balance: the amount of funds left in a bank account after all debits and credits have been calculated.
How to Evaluate a Company's Performance
WHY ???
 to get a truly accurate information of the state of the company’s financial health
 to identify trends, successes and problems within a company's finances
 to make plans for the future
HOW ???
Companies have to produce accounts every year
Financial reports (financial statements) demonstrate a company's financial position over a specific
period of time (on a monthly, quarterly or annual basis)
Who Uses Accounting Data?
USER
Human Resources
Investors
Management
Finance
Marketing
Creditors
QUESTION
Can we afford to give our employees a pay raise?
Did the company earn a satisfactory income?
Do we need to borrow in the near future?
Is cash sufficient to pay dividends to the stockholders?
What price for our product will maximize net income?
Will the company be able to pay its short-term debts?
GAAP (Generally Accepted Accounting Principles) :The common set of accounting principles,
standards and procedures that companies use to compile their financial statements.
GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly
accepted ways of recording and reporting accounting information.
Cycle of action in accounting
The accounting process starts with inputs, and these inputs are things such as documents (invoices),
purchasing documents, payroll records, travel and entertainment records.
Entries are recorded chronologically into JOURNALS
Information from JOURNALS is transferred into LEDGERS, where it accumulates in specific categories
(cash account/sales account/account for a particular customer)
A TRIAL BALANCE is prepared at the end of each accounting period> this is a summary of the ledger
information to check whether the figures are accurate. It is used directly to prepare the main financial
statements.
Introduction to Financial Statements
The three main elements of financial accounts are:
Income Statement / Profit and Loss account P&L
Balance Sheet
Cash flow Statement
INCOME STATEMENT: measures the business' performance over a given period of time, usually one
year. It begins with total sales (=revenue) generated during a month, quarter or year.
Subsequent lines then deduct all of the costs related to producing that revenue.
The five key lines that make up an income statement:
Sales or Revenue: is the money that comes into the company from the sale of products or services . You
calculate this amount by totaling all the sales or revenue accounts.
Cost of Goods Sold: How much was spent in order to buy or make the goods or services that were sold
during the accounting period in review.
Gross Profit: How much a business made before taking into account operations expenses; calculated by
subtracting the Cost of Goods Sold from the Sales or Revenue.
Operating Expenses: How much was spent on operating the business; qualifying expenses include
administrative fees, salaries, advertising, utilities, and other operations expenses. You add all your
expenses accounts on your income statement to get this total.
In Summary it shows: Revenue-Expenses = Profit
BALANCE SHEET
A balance sheet shows the value of everything the company owns as well as everything that it owes.
The BS applies to a single point in time (usually at the end of its financial year)
A balance sheet is always prepared at the close of business on the last day of the profit period.
It presents the balances (amounts) of a company’s assets, liabilities, and owners’ equity at an instant in
time.
Assets: anything owned by a company that can be converted into cash or used to generate income.
tangible assets
assets having a physical existence
intangible assets
not physical
CURRENT
(can be turned into the cash quickly)
FIXED – LONG TERM
(cannot be turned into cash quickly)
goodwill
cash
buildings
patents
cas equivalents
machinery
copyrights
accounts receivable
computer equipm.
trademark
short-term investments
tools
business methodologies
inventories (unsold stock)
furniture
land
Liabilities: are financial obligations or debts held by a company
CURRENT
(have to be paid within the next year)
FIXED – LONG TERM
(are repayable after more than one year)
bank debt
accounts payable
long-term rent
pensions
Shareholder’s equity
The net value of a company to its shareholders calculated by adding up the value of a company’s asset
and then subtracting liabilities.
CASH FLOW STATEMENT
- shows flows of funds IN and OUT of the company over period of time.
Cash can come from (or be used for) three areas:
OPERATIONS: money received (or lost) from actual business activity
INVESTING: money spent on physical property (plant, equipment), money received (or lost) by investing
in stocks and bonds, and money made (or lost) from buying or selling subsidiaries
FINANCING: money made by issuing new shares, dividend payments made to shareholders, money
received by borrowing from the bank ….
VOCABULARY
account
účet
accounting
účtovníctvo
accountant
účtovník
accounts payable
účty veriteľov/pohľadávky
accounts receivable
účty dlžníkov
asset, n
aktívum
balance sheet
súvaha
bill
účet
bookkeeping
účtovníctvo
cash flow statement
prehľad peňažných tokov
consolidated accounts
konsolidovaná účtovná závierka
costs
výdavky
debit
debet / dlžoba
to debit
účtovať na ťarchu
credit
kredit
to credit
dobropisovanie (na účet)
debtor
dlžník
dividend
dividenda
double-entry
podvojný
financial accounts
finančné výkazy
fund
kapitál
interest
podiel
invoice
faktúra
item
položka
journal
účtovný denník
ledger
účtovná kniha
liability
pasívum
loss
strata
net income
čistý príjem
overheads
režijné náklady
profit and loss account
výkaz ziskov a strát
profit
zisk
receipt
blok
revenue
príjem
sales
predaj
single entry
jednoduché (účtovníctvo)
shareholder ’s equity
majetok vlastníkov
taxation
zdanenie
transaction
transakcia
transfer to
previesť na
trial balance
skúšobná súvaha
voucher
doklad