Financial Statements

The final products of accounting are financial statements. Financial statements are means of communicating important accounting information to users: Management, State Administration. Banks, Tax Authorities, suppliers, customers, investors. They show the business in financial terms.

Four major financial statements are used to communicate accounting information about a business: the Income Statement, the Statement of Owner's Equity, the Balance Sheet, and the Statement of Cash Flow. The Income Statement, the Statement of Owner's Equity and the Statement of Cash Flow give the time period (month, quarter, year), but the Balance Sheet gives the specific date to which it applies - e.g. December 31. The main are the Income Statement and the Balance Sheet.

The Income Statement shows financial position of a business over a definite period of time. It summarizes the revenues earned and expenses paid by a business over a period of time. Many people consider it the most important financial report because it shows whether a business received profit or lost money. So, its main formula

is:

Revenues - Expenses = Gross Profit or Loss.

Gross profit is profit before taxes. In Great Britain this statement is called Profit and Loss Account.

The Balance Sheet shows the financial position of a business on a certain date, usually the end of the month or year. For this reason, it often is called the statement of financial position and is dated as of a certain date. The Balance Sheet presents the quantity (in money measure) of business's assets, liabilities and owner's equity (capital). The accounting equation of the Balance Sheet is: Assets = Owner's equity + Liabilities.

It can be seen that the two sides of the equation will have the same totals. This is because we are dealing with the same thing from two different points of view. The actual assets, liabilities and capital may change, but the equality of assets with that of the total of capital and liabilities will always hold true.

6. Speak on the topics: Accounting; Financial Statements.

Lesson 11

1. Read and translate the text:

Taxes and Taxation

Everyone knows that taxation is necessary in a modern state: without it, it would not be possible to pay the soldiers and militiamen who protect us, nor the workers in government offices who look after our health, our food, our water, and all the other things that we cannot do for ourselves, nor also the ministers and members of parliament who govern the country for us.

Taxation is a system of compulsory contributions levied by a government on persons, businesses, and property used as a source for government expenses and other public purposes.

Fiscal policy means government efforts to keep the economy stable by increasing or decreasing taxes or government spending. For many years, the government tries to raise taxes to fund more and more social and defense programmes. Besides, government at every level is financed through the collection of taxes. Under state and local laws organizations and individuals are required to compute their fax liability, complete the necessary forms, and pay the taxes due. Many features of taxation, both in the imposition and collection of taxes, are me same in many countries. Governments expenses are growing, so, their need in money is big.

Under state and local laws, businesses and individuals pay many kinds of taxes, state and city income taxes (individuals pay graduated income taxes), social insurance and other payroll taxes, employment taxes, real-estate taxes. Businesses pay taxes on profits and capital, turnover taxes, export/import taxes, excise taxes, sales taxes and of course, value-added taxes.

Managing taxes means tax implications of all financial transactions. Every business tries to minimize its taxes, so tax accounting has developed into one of the most important branches of accounting throughout the world. Many businesses pay over 50 per cent of their net income to the state government in the form of income taxes, and the rest taxes cover the next 30-40 per cent. So, careful planning designed to decrease the tax liability to the lowest level is thus a major concern of a business. On the other hand, tax computation is under strict scrutiny of Tax Ad ministration.

The fiscal system of Ukraine includes taxes, other compulsory payments to the budget and state purpоsе-oriented funds. The system of taxes includes general state and local taxes and duties. General state taxes: payments with the same mechanism of performance all over the territory of Ukraine (single dates of payment, benefits, rates). They include value-added tax, excise duty, income tax of citizens, enterprise income tax, land tax, fiscal license tax, tax on the owners of vehicles, compulsory state pension insurance, charges to State innovation fund, etc. Each Council (Rada) possesses the right to independently determine benefits, rates and dates of local payments. The local taxes and duties include advertising tax, rates, hotel duties, parking tax, tax for issuing a release for location of trade and service objects, tax for the right to use the local symbolism.

A well-known saying holds that nothing is certain but death and taxes. Unhappily, governments are often responsible for the former, but they are virtually always the source of the latter.

Commentary:

taxation – оподаткування, стягнення податків

compulsory contributions – обов’язкові внески

to levy (syn. collect, to pick up) – збирати податки

fiscal policy – фіскальна (фінансова, бюджетна) політика

to impose taxes – обкладати податком

state and city income taxes – державні та міські прибуткові податки (прогресивний податок)

taxes – податки

- social insurance – на соціальне страхування

- payroll – з заробітної плати

- employment – внесок у фонд страхування від безробіття

- real-estate – на майно

- turnover – з обігу

- export/import – на експортно-імпортні операції

- excise – акцизний збір

- sales – з продажу

- value-added – на додану вартість

- taxes on profit – на прибуток

tax implication – відрахування податків

Tax Administration – Податкова Адміністрація

Tax Authorities – податкова інспекція

Tax Police – податкова поліція

tax rates – податкова ставка

tax benefits – податкові пільги

land tax – податок на землю

tax on the owners of vehicles – податок на транспортні засоби

license tax – ліцензійний збір

2. Say what you have learnt about:

1. taxation as a system;

2. the objects who are required to compute their tax liability;

3. the sources for government expenses and finance;

4. the ways to keep the economy stable;

5. the identity of taxation features in all countries;

6. the types of taxes;

7. the fiscal system of Ukraine and the principles it is based on;

8. the local (city) taxes.

3. Give your points of view on such problem questions as:

• Why has tax management become an important speciality throughout the world?

• Why do most businessmen depend on tax manager (accountant)? What does a tax accountant have to do?

• What methods of depreciation offer a tax advantage? (the previous lesson)

• What does tax accounting deal with?

4. Discuss the following statements:

1. Tax accounting is a major concern in business.

2. Advantages of the progressive income tax rate.

3. What do you know about double taxation? How can it be eliminated or reduced?

5. Read, translate and retell the text.