Profit and Loss
Business Lesson 9
New Vocabulary
profit and loss
прибыль и убыток
accruals principle
принцип начисления
profit and loss account
отчет о прибылях и убытках
exceptional items
исключительные результаты
general expenses
общие расходы
operating profit
операционная прибыль (от основной деятельности)
interest payable
проценты к оплате
retained earnings
нераспределенная прибыль
reporting period
отчетный период
Cost of Goods Sold (COGS)
себестоимость реализованной продукции
labour costs
затраты на оплату труда
pre-tax profit (profit on ordinary activities before tax)
прибыль до вычета налогов
corporation tax
налог на прибыль
profit after tax
прибыль после уплаты налогов
dividends per share
дивиденд с акции
Forensic Accounting
судебная бухгалтерия
financial records
финансовая отчетность
tax evasion
уклонение от уплаты налогов
white collar crime
экономическое преступление
gross sales
валовый объем продаж
net sales
чистая выручка
доход, выручка
Interest Expense
расходы на выплату процентов
Net Income
чистая прибыль, чистый доход
прибыльность, рентабельность
Operating Activity
Операционная деятельность
investing activity
инвестиционная деятельность
significant drop
значительное снижение, значительное сокращение
gradual drop
постепенное снижение
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Maria Malone is the chief finance officer {CFO) of a large international media company, based in the UK, with activities in television and publishing
Profit and loss account
Accruals accounting
Maria Malone says: 'The accruals principle or accruals method means that events in a particular reporting period, for example sales of goods or purchases of supplies, are recorded in that period, rather than when _ money is actually received or paid out, which may happen in a later period.'

Profit and loss
'The profit and loss (P&L) account records the profit - the money we make - or the loss - the money we lose - during a particular reporting period, using the accruals principle.

'In our case, our accounts show sales from books, magazines, television advertising, etc. during the period. Then we show the cost of goods sold (COGS), for example labour costs - cost of employees' salaries - and the cost of materials.

'Then we take away general expenses - the costs related to making these sales such as salespeople's salaries, rent for buildings, etc. There is also the cost of depreciation - this is not an actual sum of money paid out, but is shown in the accounts to allow for the way that equipment wears out and declines in value over time and will have to be replaced. This leaves us with our operating profit.

'Then we subtract the interest payable on money we have borrowed in the form of bonds and bank loans. This gives the profit on ordinary activities before tax or pre-tax profit.

'Sometimes there are exceptional items to report, for example the cost of closing a particular operation, but fortunately this does not happen very often.

'Of course, we pay tax on our profits and in the UK this is called corporation tax.'

'From the profit after tax, we usually pay dividends to shareholders, and you can see the figure for dividends per share. However, when business is bad, we may not do this - we may pass, omit or skip the dividend. Profit after tax is also referred to as earnings.

'Naturally, we don't pay out all our profit in dividends. We keep retained earnings - some of the profit to invest in our future activities. 'You can look at profitability in terms of earnings per.share (EPS), even if some of these earnings are retained - kept by the company and not paid out in dividends.'
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Look at the P&L Statement
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Two colleagues from an audit firm are discussing the latest financial scandal. Listen to the dialogue.
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Read the following article
Why it's sexy to be a future accountant
I recently saw a student on a university campus wearing a T-shirt with the phrase 'Future accountant'. Given the profession's traditional image problem, it must have been ironic, mustn't it?

Perhaps not. There are signs that accountancy is putting its traditional image problem behind it. Increasing numbers of graduates are applying to join the profession, motivated not just by the prospect of high salaries but also by a change in perception. Ironically, it is partly its association with the twenty-first century's biggest financial scandals of Enron and WorldCom that has made accountancy become, well, sexier.

At the forefront of this image makeover is the specialism of forensic accounting, with its suggestion of crime scene investigators and technicians in white coats. In reality, a forensic accountant's work is chiefly concerned with any investigation of financial data which will eventually be used in some form of litigation. Some of them work for law enforcement agencies gathering evidence to support fraud and bribery charges. Others are expert witnesses who testify on either side in financial dispute cases.

While it might not always be CSI Miami, forensic accountants do need to develop some special skills which relate to their roles as investigators. For instance, a forensic accountant's work can make them crucial figures in high-profile criminal cases like Enron, so a confident manner in court can be helpful. ln addition, a systematic and analytical mind is essential. For example, in a fraud case, they may need to search financial records thoroughly, looking for patterns of similarities and coincidences that might indicate a cover-up. Imagination - not a characteristic traditionally associated with accounting - is also part of their skill set, as they dig deeper and try to get into the mind of suspected fraudsters.

Although the term forensic accounting is relatively recent, the importance of accountants in legal matters has a long history. The most famous case in which forensic accountancy has provided the pivotal evidence was in the conviction of the notorious Chicago gangster Al Capone. While Capone's criminal activities had included protection rackets and murder, he was finally convicted on the apparently lesser charge of tax evasion. Elmer Irey, an official at the US Inland Revenue Service, believed that Capone's conviction could be obtained on the basis of a Supreme Court ruling that the income from organized criminal activity was also subject to taxation. A team of investigators spent several years gathering evidence on Capone's net worth and expenditure, sometimes working undercover as members of his criminal gang. They ultimately succeeded in assembling the documentary evidence needed to convict him.

Many believe that future demand for forensic accountancy services will only get bigger. Stories of scams and frauds emerge daily in the media, and, against the background of Enron and WorldCom, the problem of white-collar crime is being taken increasingly seriously by policy-makers. The US Sarbanes-Oxley Act is just one example of this change in attitude.

But it's not just in the area of white-collar crime that forensic accountants will find future employment. Terrorists require money for their activities but need to conceal their sources of funding to avoid capture. The role of the forensic accountant will be to reveal the money trail from terrorist suspects back to their sponsors. Their importance has recently led one senior British politician to liken forensic accountants to the fingerprint experts of previous generations.

The future looks bright for accountancy, and there are enough exciting roles in the profession to ensure that its image is not quite what it once was. So, in case you run into someone wearing a 'Future accountant' T-shirt, think before you congratulate them on their irony. They might just be serious
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Watch the video
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Your homework is to write the summary of this topic, minimum 15 sentences, using new words and expressions
Write your own beautiful success story!
Translate the following sentences into English
the first set is mandatory
Compare your answers to the answer key
Answers to the text 1 questions
  1. reporting period
  2. operating profit
  3. retained earnings
  4. exceptional items
  5. accruals principle
  6. interest payable
  7. profit and loss account
  8. general expenses
Answers to the P&L Statement questions
  1. Statement Of Financial Position
  2. A PERIOD Of Time
  3. Revenues
  4. Gain
  5. Interest Expense Of $1,000
Audio 1 answer key
  1. That the scandals with Megacorp PLC will mean that they are going to have to change the way they do their job.
  2. That their role is only to give an opinion based on estimates, and that they can't review every detail.
  3. Correct financial information.
  4. Overstating assets by 50%.
Audio 1 tapescript
HEIDI: Have you seen the latest?
PHILIP: What's that? About Megacorp PLC
HEIDI: Yeah. And it's not the only one. Every week there's a new scandal. It's going to change how we do our job.
PHILIP: How? Our role is only to give an opinion based on estimates. We can't review every little thing in detail.
HEIDI: Oh, come on.Investors expect financial information to be correct. And I think it's fair enough. If they find out that, I don't know, that assets have been overstated by 50 %, then they're going to be annoyed. I would be, too.
PHILIP: We don't overstate anything.
HEIDI: But we're expected to find these things. That's what we're paid to do.
PHILIP: Hang on a minute. Our job is to review the information provided to us by the management of a company. We have to assume that they're being honest. We're not police officers.
HEIDI: But ...
PHILIP: Let me finish. Look, there are legal mechanisms to deal with people who commit fraud. The auditing profession has its own regulations and investors trust this. It's tried and tested.
HEIDI: All I'm saying is that investors have a right to rely on the financial information they read, and we're paid to check exactly that. Self-regulation may not be enough. And the trend is...
PHILIP: I agree that it's a bit strange that we're paid by the same people who we audit, but it's always been this way and | don't see how that can be changed, do you?
Answers to the text 2 questions
  1. seems less boring than before.
  2. relates to information used in legal procedings
  3. his financial affairs were exposed.
  4. show how terrorist crimes get funding.
  5. A confident manner in court, a systematic and analytical mind, and imagination.
Video answer key
  1. a - Figures have increased slightly.
  2. b - This is a significant drop.
  3. c - Figures have increased dramatically.
  4. d - The situation is stable.
  5. e - We're hovering at around 3%.
  6. f - This is a gradual drop.
  7. g - There have been some fluctuations.
  8. h - The situation was pretty bad, but is now improving slowly.
  9. i - Profits have been falling since the fire.
  10. j - Figures have increased steadily.
The first set
  1. Prepayments of $11.9 million have been recognized following the ACCRUALS PRINCIPLE.
  2. Accordingly, such GENERAL EXPENSES are not, in the Panel's view, compensable.
  3. Despite this drop in passenger numbers, the BMI Group reported a PRE-TAX PROFIT of £10 million for the year ending 31 December 2005.
  4. I sent him to a crash course in FORENSIC ACCOUNTING.
  5. There are two generally accepted methods for drawing up the PROFIT AND LOSS ACCOUNT: the horizontal method and the vertical method.
  6. These programs continued beyond the REPORTING PERIOD.
  7. However, the cash flows relating to such transactions are cash flows from INVESTING ACTIVITIES.
  8. Our NET INCOME is up 14%.
  9. A small GAIN is better than a great loss.
  10. I'm upset because you committed insurance FRAUD.
The second set
  1. I should have married that nice, quiet ACCOUNTANT.
  2. The goal for OPERATING PROFIT has been raised to 190 billion yen.
  3. DEPRECIATION is directly available from national accounts data.
  4. I'm going to check on Andrew's FINANCIAL RECORDS.
  5. They also tend to have lower EARNINGS relative to typical male employment.
  6. Including the COST OF GOODS SOLD.
  7. Total GROSS SALES of this period was $88 million.
  8. Adam has a great idea of how we can get some REVENUE...
  9. Examples of fixed costs consist of rent, property taxes, and INTEREST EXPENSE.
  10. This employment data should be presented by OPERATING ACTIVITY in the local and foreign markets.
The third set
  1. What's our PROFIT AND LOSS?
  2. Based on that scenario, the INTEREST PAYABLE on the construction loan would be as follows.
  3. As a rule, productivity has risen faster than real LABOUR COSTS.
  4. Despite reasonable rates, TAX EVASION is widespread.
  5. In most cases, such requirements are expressed in terms of unappropriated RETAINED EARNINGS.
  6. I have made a PROFIT AFTER TAX around 2400000 euros.
  7. Between 2004 and 2007, Metso's NET SALES increased from EUR 3.6 billion to EUR 6.3 billion.
  8. The PROFITABILITY of agricultural production is low.
  9. That's the most SIGNIFICANT DROP in crime in this district... in recent history.
  10. It is a sector marked by strong price and volume FLUCTUATIONS.
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