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Financial Statements
A company and its shareholders need to know information about the company's financial performance. This information is compiled by the company accountantsand checked by independent auditors. The company's annual report consists of three financial statements: • Profit and loss account / P& L (BrE) or income statement (AmE). This account shows the revenue (money coming into the business) and expenditure (money going out). It also shows the company's turnover (total sales), costs and overheads. • Balance sheet. This account shows the financial situation of the company on a particular date, usually the end of the financial year. It consists of a list of assets (cash investments, property and debtors - money owed by customers) and liabilities (all the money that the company will have to pay out, such as taxes, mortgage and money owed to suppliers). Firms in a good situation are said to have a strong balance sheet and those that are not, a weak one. • Cash flow statement. This document shows the flow of cash in and out of the business. It includes sale of assets, issuing of shares, payment of dividends, trading profits and many other activities. When company's accounts are presented in a way that makes performance look better than it really is, the company may be accused of window dressing or creative accounting. 1 Who compiles the information about the company's financial performance? 2 Who is this information checked by? 3 What does the company annual report consist of? 4 What is the purpose of an annual report? 5 What does the income statement show? 6 What does the balance sheet include? 7 When do firms have a strong / weak balance sheet? 8 What is cash flow statement? 9 What is creative accounting? 1 Match words that have a similar meaning:
2 Match the words and phrases in the box with the correct definition:
received from the sale of goods or services; 6) an amount of money spent; 7) the total business done by an organization in a given period; 8) a long-term loan from a bank for buying property, which is used as security; 9) accounting which follows the literal rules of legislation and accounting standards but succeeds nevertheless in presenting an unduly favourable picture of a company's position or progress; 10) statement of what a company owns, or assets, and owes or liabilities.
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