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Today, we’ll continue looking at vocabulary related to accounting. First, we’ll hear a short article introducing the topic then we’ll go over each word in detail with some example sentences to show you how you can use the words. At the end of the video, you’ll have a chance to review and practice your new vocabulary.
Video: To be as useful as possible, company accounts are expected to conform to Generally Accepted Accounting Principles or GAAP, a set of rules that aims to make accounting statements clear and consistent. These rules require accountants to be conservative in calculating the company’s income, recording payments only when they are certain to be received, and also in calculating expenses which should be included even when they are likely, but not certain. The rules of GAAP require accountants to give a detailed breakdown of different types of cash flow on a company’s profit and loss statement. For, example by separating operating expenses from non-operating expenses.
Now we’ll go through each word in detail with some example sentences to show you how you can use the vocabulary.
Generally Accepted Accounting Principles – Often abbreviated to GAAP. The term Generally Accepted Accounting Principles or G-A-A-P pronounced GAAP, refers to a set of rules followed by accountants in preparing companies financial statements. While the rules of GAAP vary somewhat from one country to another, all national systems aim to produce accounting statements that are comprehensive and consistent.
Example: Adopting GAAP rules has made it easy to compare the performance of company’s in different countries.
Income - Income is money earned by a company through sales or other activities. As we learned in the last lesson, accountants always distinguish between gross income or revenue, which is a company’s income before costs and net income or profit which is income after costs have been deducted.
Example: Investors don’t usually expect to see a new company generate net income in its first few years of operation.
Expense – An Expense is money paid out by a company. Labor costs, rent, raw materials and interests on loans are all common company expenses.
Example: We’re trying to reduce expenses this year by having all staff fly economy class on business trips.
Expense Account – An Expense Account is a record of expenses paid for by employees for company business. These expenses will then be reimbursed or paid back by the company at the end of the month.
Example: The sales team has been give a very generous expense account to entertain potential clients.
Cash Flow – Cash Flow is any movement of money into or out of the company’s accounts. It is different from income because some activities like receiving loans from the bank will create positive cash flow without increasing a company’s profits.
Example: Sales have been excellent this quarter but the payment delays by our largest client have caused a serious cash flow problem.
Cash Flow Statement – A Cash Flow Statement is another type of accounting document, showing flows of funds in and out of a company.
Example: The cash flow statement from last year indicates that the company took on a lot of bank debt.
Operating Income – Operating Income is income earned by a company through its normal business transactions, such as the sale of its products.
Operating Expense – Operating Expenses are costs associated with those transactions such as the payment of salaries and the purchase of raw materials.
Example: Operating expenses have been cut substantially since we closed all our overseas offices.
Non-Operating Income – Non-Operating Income is income received by a company that is not earned from its productive activities. This may include items like the interest earned on a company’s bank accounts or money earned from selling off an investment or a piece of property.
Example: The firms’ profits are up this year, but it’s mostly non-operating income from the sale of its old office building in May.
Non-Operating Expense – Non-Operating Expenses are expenses not related to the costs of a company’s productive activities. These include interests paid on a companies bonds, bank loans and other debts.
Now it’s your turn to practice some of the words we have studied in this episode. You’ll hear a series of sentences with the word blanked out or replaced with a beep. Repeat the whole sentence but say the missing word. For example, if you hear: Operating _________ has been cut substantially since we closed all our overseas offices. You should say: Operating expenses have been cut substantially since we closed all our overseas offices. We’ll play an example answer after each exercise. Are your ready? Let’s begin.
- Gross (beep) up on last year, but profits still fell because our costs have increased.
Answer: Gross revenue is up on last year, but profits still fell because our costs have increased.
- All clients entertaining is done on a company’s (beep) account.
Answer: All clients entertaining is done on a company’s expense account.
- Overall sales were down but (beep) income is up, as we were able to cut production costs.
Answer: Overall sales were down but net income is up, as we were able to cut production costs.
- The new line of credit has really helped our cash (beep).
Answer: The new line of credit has really helped our cash flow.
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