Accounting

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Accounting Marjorie Rosenberg Aims

to understand what financial documents are used for

to be able to explain how financial documents are used, when they are produced and what information they provide

to be able to complete an income statement

to be able to use different words to describe change and financial results

to be able to complete a graph based on a text

to be able to talk about an income statement

Tasks to discuss the differences between

income statements and balance sheets

to find words used to indicate change or financial results in a text

to draw a graph based on a text to complete an income statement

based on a text to explain an income statement

This can be used as a stand-alone activity or with Business Advantage Intermediate, Almut Koester, Angela Pitt, Michael Handford, Martin Lisboa, Unit 11.

Level Intermediate (B1)

Timing 70 minutes depending on the size of the class. This should include checking the answers and clarifying answers to discussion questions.

Lead-in (10 minutes) Students work in small groups and discuss the purpose of financial documents, what information they provide and when they are produced. You could take examples of income and balance sheets from the web into class for students to look at here.

Key Major differences: Income statements show profit or loss for a particular period of time. / Balance sheets give a report of the assets owned by a company and the debts it has as well as how much of the company is owned by shareholders at a point in time. They are based on information going back to the founding of the company. The balance sheet shows the financial position of the company at a point in time so that an investor or creditor can see immediately how much the company owns and owes. / The income statement shows how much the company earned in turnover and how much they had to spend resulting in a profit or loss for a year. As these are usually produced to compare different years, investors and creditors can see the trend of where the company is heading. These documents are usually produced once a year.

Reading and vocabulary (10 minutes) Students read a report on a company and underline words indicating change or reporting results.

Key Sales: began at, increased, reached a peak, plummeted, bottoming out, stagnated, at this level. recover, jump, fluctuation, soar, ending


Expenses: fluctuation, increases, peaked, fall, levelled off, reached the level of, costs came to, giving us, added up to, resulting in, realise a profit Conclusion: cut down on expenses, bottom line, reduce expenses

Matching (5 minutes) Students match vocabulary words to their meanings.

Key 1G, 2D, 3I, 4A, 5F, 6C, 7H, 8E, 9B

Vocabulary questions (5 minutes) Students work in pairs to answer questions about the vocabulary.

Key 1 ‘Jump’ is similar to ‘soar’. 2 ‘level off’ and ‘stagnate’ are similar – ‘level off’ is neutral and ‘stagnate’ is negative

3 ‘soar’ and ‘plummet’ are opposites, bottom out’ and ‘reach a peak’ are opposites 4 recover 5 bottom line

Creating graphs (10 minutes) Students use the text about sales and complete the graph. They work with a partner and describe the graph using different words. They are helped by words given in a box.

Completing an income statement (5 minutes) Students use the text about expenses to complete the income statement. As not all the figures are given they need to do some calculating to arrive at the correct figures.

Key 1 180,020, 2 (81,780), 3 6,658, 4 (760), 5 (4.250)

Explaining the income statement (15 minutes) Students are put into pairs of A and B. Student A had higher profits in 2010 and needs to complete the income statement based on information given. Student B’s company made a loss and also needs to complete the income statement. There is no one correct answer, students need to fill in the numbers which give them either a profit or a loss and make use of the other information they are given. When they finish, they explain the income statement to their partner incorporating vocabulary they have already encountered in the activity.

Discussion questions (10 minutes) Students discuss these questions and report back.

Key Cost of sales can include inventory you buy in order to sell it, raw materials, labour to produce the product, hiring machinery, tools, other production costs Selling expenses can include advertising and promotional materials, commission paid to sales people, rents for offices, salaries, telephone costs Administrative costs can include general costs of running the company which are not directly related to sales such as the cost of an HR department, company executives, accounting departments, ICT departments as well as general office supplies Finance costs for loans change when interest rates change, when the balance owed increases or decreases, or if terms of repayment are made longer or shorter.

Follow up activity (10–15 minutes in the following class) Look on the internet or in an annual report for an income statement. Compare it to the one in this exercise. Where are the similarities? Be prepared to explain these in class.

Accounting Marjorie Rosenberg Aims

to understand what financial documents are used for

to be able to explain how financial documents are used, when they are produced and what information they provide

to be able to complete an income statement

to be able to use different words to describe change and financial results

to be able to complete a graph based on a text

to be able to talk about an income statement

Tasks to discuss the differences between

income statements and balance sheets

to find words used to indicate change or financial results in a text

to draw a graph based on a text to complete an income statement

based on a text to explain an income statement

Lead-in Work in small groups and answer these questions.

What are some of the major differences between income statements and balance sheets?

What are these financial documents used for and what information do they provide?

How often are these documents produced?

Reading and Vocabulary Read the report on a company below. Underline the information explaining the changes in sales as well as words used to report financial figures in expenses and the conclusion.


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Report on finances 2011 Sales In 2010 sales began at €180,020. They slowly increased throughout the first quarter and reached a peak at €243,359 at the end of March. In April, a new competitor began to take away market share and sales plummeted to a low in June, bottoming out at €95,000. They stagnated at this level for the summer but a new competitive product helped us to recover and caused them to jump again in September to €124,154. October and November saw some fluctuation but in December sales began to soar till the end of the year, ending only €8,030 below the peak in March.

Expenses Cost of sales saw fluctuation as well. We had some increases when sales peaked at the end of March but they did not fall as far as the sales did in June. By the end of the year, the situation levelled off and the final figure for cost of sales was €94,010. This gave us a gross profit of €141,319. Our other expenses also saw some fluctuation but selling expenses at the end of the year reached the level of €81,780 and administrative expenses came to €52,881. We had other net operating income resulting in an operating profit of €7,378. Finance costs on loans

added up to a final figure of €760 so that our profit before taxes came to €6,618. After taxes were paid we realised a profit of €2,369 for the year.

Conclusion Looking at these figures indicates that we are moving in the right direction. We may need to cut down on some of our expenses for next year in order to improve the bottom line. We are looking into ways of reducing some of the administrative expenses as well as rolling out new products to increase our market share and our sales.

Matching Match these vocabulary words to their meanings. 1 bottom line A to increase quickly in amount or value 2 bottom out B to stop growing and not show any signs of activity 3 fluctuation C go down in amount or value very quickly and suddenly 4 soar D reach the lowest point in a changing level that is about to start

increasing again 5 level off E to improve after a difficult period 6 plummet F if an amount stops rising or falling and stays the same 7 reach a peak G the final figure in the accounts of a company or organisation

stating the total profit or loss 8 recover H a period in which something reaches its highest level 9 stagnate I a situation in which prices, levels or interest rates go up and

down Vocabulary questions Work with a partner and find the answers to these questions using words from the table above.

1 Which word is similar to the word ‘soar? 2 Which two words are similar? Which of them is neutral and which is negative? 3 Which two sets of words are opposites? 4 Which word indicates that the situation is getting better? 5 Which word is used to indicate how much money was earned or lost?

Creating graphs Using the text about sales, complete this graph. Work with a partner and use the words in the box to describe it rather than the words in the original text. Make sure you use the correct tense of the verbs. hit a low reach the highest level finish go up plunge rise quickly start

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Completing an income statement Using the text about expenses, complete the income statement for 2011 using the figures from the end of 2011. Remember to use brackets when necessary.

Income statement This year €000 Last year €000 Sales 1 Cost of sales 94,101 Gross profit 141,319 Selling expenses 2 Administrative expenses (52,881) Other net operating income 3 Operating profit/(loss) 7,378 Finance costs 4 Profit/(Loss) before taxation 7,378 Taxation charge 5 Profit/(Loss) for the period 2,369

Explaining the income statement Work in pairs. One of you is Student A and the other is Student B. Student A’s company had higher profits last year because the cost of sales was lower although sales were only slightly higher than in 2011. In addition, the finance costs were less but taxes were higher. Complete the income statement by filling in numbers that reflect this information. Student B’s company made a loss last year. Sales were lower as well as the cost of sales but administrative costs, selling expenses and finance costs were higher resulting in an overall loss. Complete the income statement. Compare your income statement with your partner’s and explain it to him or her.

Discussion questions Discuss these questions with your partner and report your answers back to the class.

What is included in costs of sales? What is included in selling expenses? What is included in administrative costs? Why do finance costs change from year to year?

Follow up Look on the Internet or in an annual report for an income statement. Compare it to the one in this exercise. Where are the similarities? Be prepared to explain these in class.

Accounting

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