Bonos Series P

Accounting is frequently called the “language of business” because of its ability to communicate financial information about an organisation. Managers, potential investors, creditors, and the government depend on a company’s accounting system to help them make informed financial decisions. An effective accounting system must include accurate collecting, recording, summarizing, interpreting, and reporting of information on the financial status of an organization. Incoming money (revenues) and outgoing money (expenditures) must be carefully monitored and all transactions summarized in financial statements, which reflect the major financial activities of an organization.

Two common financial statements are: the balance sheet, which shows the position of a company at one point in time (for example: March 7, 1997), and the income statement, which shows the financial performance of a company over a period of time (for example: the end of this financial year).

The Balance sheet (Bilance) provides a summary of what a company owns and what it owes on one particular day.

Assets (Aktîvs) in the balance sheet represent everything that is owned by a business, and are divided into fixed assets (Pamatlîdzekïi) and current assets (Krâjumi). Cash and accounts receivable (Avansa maksâjumi par precçm, Nepabeigtie pasûtîjumi utt.) are all current assets, but property (Zemes gabali, Tehnoloìiskâs iekârtas utt.) makes up the fixed assets.

Liabilities (Pasîvs) are the debts owed by a company – for example, to suppliers and banks. The liabilities section of the balance sheet is often divided into current (Îstermiòa parâdi) and long-term (Ilgtermiòa parâdi) liabilities. Current liabilities are accounts and income taxes payable (Aizòçmumi pret obligâcijâm un no kredîtiestâdçm utt.), but long-term liabilities are bonds and longterm notes (Akcijâs pârvçrðamie aizòçmumi, Parâdi meitas uzòçmumiem utt.).

If liabilities are subtracted from assets (assets – liabilities), the amount remaining is known as owner’s equity. This relationship of assets, liabilities and owner’s equity is often represented by the fundamental accounting equation: assets = liabilities + owner’s equity

## People who specialize in the field of accounting are known as accountants. In the USA accountants are usually classified: public (they work independently and provide accounting services such as auditing and tax computation), private (they work solely for private companies that hire them to maintain financial records), and governmental (they work for governmental agencies or bureaus).

The top figure at the accounting system in Latvia is the CPA (Certified Public Accountant), who fulfils the most rigorous functions. To become a CA one must meet the following demands:

1) be a citizen of the Latvian Republic;

2) have an experience of work in accounting systems not less than 5 years;

3) pass a qualification exam.

In case the applicant meets the requirements, he (she) may appeal to the Ministry of Finance of the Republic of Latvia.

Once a year all firms and enterprises have to invite the CPA, who checks the financial statements and makes a conclusion of the work of enterprise by making a report after auditing.

The main objective of the reform in the Latvian accounting system was to draw the work of the accounting system in Latvia in accordance with the international standards of accounting. The following steps were undertaken to reform the accounting system in Latvia:

1) 1.01.1993 – the law “About the Accounting” came into force; 2) 19.07.1993 – “Accounting documents regulation”;

3) 1.01.1994 – New National Plan of accounts in the Latvian accounting system;

4) 1.12.1995 – the Cabinet of Ministry of Latvia adopted the code of rules No. 339 “About the Organizing and Conducting of Accounting at the industrial and other enterprises”.

Before this reform, the accounting system in Latvia was focused on protecting the interests of the government and no analysis of companies’ financial situation was made. Only calculation and auditing took place. Everything was planned by the government.

After the reform, the accounting system in Latvia is focused on the protecting of the private trade and individuals, and all the financial statements must also be used for analysis and planning.

This reform gave Latvia a great opportunity to communicate common business language with our possible partners and competitors in the West and the USA. The standards of organizing accounting, auditing, routine

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paper work and filling in the main financial documents is similar, and that is very important for Latvia on its way to highly developed economy.

Practical Assignments

1. Answer the following questions.

1. What career opportunities are available in accounting? 2. If people choose accounting as their business career, what aptitude for it should they have to be successful? 3. What is the other name of a “financial plan”? 4. What phrases or words related to budgets do you know? 5. What are the ways to avoid budget deficits and achieve a balanced budget in a family (in the country)? 6. What is “a fiscal year”? 7. Explain the meaning of the following terms: liabilities, assets, equities, entities.

2. Answer the following questions.

1. Why is accounting called the language of business? 2. What does effective accounting system include? 3. What is the other name of “incoming / outgoing money”? 4. What are the common financial statements? 5. What is the top figure in the accounting system of Latvia? 6. What do assets represent in a balance sheet? 7. What does the term “fixed assets” (“current assets”) mean? 8. What term is used to name the debts owed by a company? 9. In what relationships are assets, liabilities and owner’s equity?