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Reading/Speaking
Balance Sheets (American English)
Marjorie Rosenberg

Aims
To introduce and practice American terms used in
balance sheets
To encourage students to read carefully and
interpret numbers in a balance sheet
Tasks
Match vocabulary terms to their definitions
Read through a balance sheet and correct a text
Analyze a balance sheet using ratios and discuss
the results

Vocabulary
Match these balance sheet terms to their definitions.

1. current assets
2. cash
3. accounts receivable
(A/R)
4. allowance for doubtful
accounts
5. inventory
6. non-current assets
7. fixed assets
8. land and buildings
9. plant and machinery
10. furniture and fixtures
11. depreciation
12. current liabilities
13. accounts payable
14. notes payable
15. current portion of long
term debt (CPLTD)
16. accrued expenses
17. long term liabilities
a. contractual lease payments due twelve months after balance sheet date
b. long-term assets owned by a company and used in its continuing
operations
c. shares representing ownership interest in a company with voting rights
but no guarantee of dividends
d. the manufacturing facility and production equipment
e. loans and other obligations with a maturity of longer than one year after
balance sheet date
f. money borrowed by company due within one year of the balance sheet
date
g. assets that are expected to be converted into cash within one year of the
balance sheet date
h. an expense attributed periodically to a long-term tangible asset for its
reduction in value
i. money owed to suppliers from products and services bought on credit
j. net earnings not paid out as dividends but kept to be reinvested or to pay
debts
k. raw materials, partially-finished goods, and goods ready for sale held by
the company
l. debt obligations that extend beyond current year
m. assets which cannot easily be converted to cash within one year of the
balance sheet date
n. share capital plus retained earnings
o. capital received from investors in return for shares above the states par
value of the shares
p. money owed to a company by its customers
q. shares which provide specific rights including a dividend to their holders

18. long term debt
19. shareholder equity
20. preferred stock
21. common stock
22. additional paid-in
capital
23. retained earnings
r. money in various bank accounts and in cash in the company
s. debts or obligations of a company due within one year from the balance
sheet date
t. movable furniture, fixtures or equipment not permanently fixed in place
u. expenses of company which have been incurred but not yet paid
v. recognition of potential loss of value for possible uncollectible bills
w. property and premises owned by the organization

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Reading/Speaking
Reading and comprehension
Look at the balance sheet on the following page and correct the mistakes in this news report.

Looking back at the years 2008-2009, we note some changes. Starting

with the total current assets, it can be seen that they decreased year-over-
year. Total liabilities, however, were at 89,543 in 2008 and decreased to
81,834 in 2009.
It can be noted that accounts receivable went up from 2008 and the
allowance for doubtful accounts was reduced. All fixed assets stayed at
the same level although the amounts deducted for depreciation were
higher in 2008 than in 2009. The value of total fixed assets was also
higher in 2008 as well as the sum for investments.
On the liability side, accounts payable indicated a decrease year-over-
year as did the notes payable. Current portion of long term debt
remained stable but accrued expenses rose considerably in 2009.
Shareholder equity showed no change except for the additional paid-in
capital, which went up.

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Reading/Speaking
The Balance
Sheet Company XYZ (In millions US dollars)
Assets 12/31/2009 12/31/2008
Current Assets
Cash 10,117 9,723
Accounts Receivable 56,163 44,930
Less allowance for doubtful accounts (2,808) (2,246)
Net Accounts Receivable 53,355 42,684
Total Inventory 11,162 11,611
Other current assets 3,343 1,715
Total Current Assets 77,977 65,733
Non-current Assets
Fixed Assets
Land and buildings 45,000 45,000
Less Accumulated Depreciation (4,652) (3,101)
Plant and machinery 12,000 12,000
Less Accumulated Depreciation (1,240) (826)
Furniture and fixtures 7,000 7,000
Less Accumulated Depreciation (1,590) (1,060)
Total Fixed Assets 56,518 59,013
Investments 16,000 14,720
Total assets 150,495 139,466
Liabilities and shareholders equity
Current liabilities
Accounts Payable 33,883 26,266
Notes Payable 15,000 10,000
Current Portion of Long Term Debt 5,000 5,000
Accrued Expenses 660 568
Total Current Liabilities 54,543 41,834
Long Term Liabilities
Long Term Debt 35,000 40,000
Total Long Term Liabilities 35,000 40,000
Total liabilities 89,543 81,834
Shareholder Equity
Preferred Stock 7,846 7,846
Common stock 13,256 13,256
Additional Paid-In Capital 5,000 5,000
Retained Earnings 34,850 31,530
Total Shareholder Equity 60,952 57,632
Total Liabilities and Shareholder Equity 150,495 139,466

Discussion
Work in pairs. Analyze the company by using these
ratios and comparing 2008 to 2009.
1. the current ratio (cash, A/R and Inventory divided
by total current liabilities)
2. the quick ratio (cash and A/R divided by total
current liabilities).
3. the equity ratio (shareholder equity divided by
total assets)
4. gearing (leverage: US) (total liabilities divided by
shareholder equity)
Discuss the results with your partner.
Which numbers do you get?
What can you say about the company based on this
information?
What trends do you notice?
Is it a positive or negative development and why?

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 Professional English Online
Balance Sheets (American English)
Marjorie Rosenberg
Aims
To introduce and practice American terms used in
balance sheets
To encourage students to read carefully and
interpret numbers in a balance sheet
Level
Stronger classes (B2C2)
Timing
30 40 minutes (including checking answers and
discussion)
This lesson can be used to supplement Unit 19 of
English for Business Studies, Unit 7 of English for
the Financial Sector, Units 11- 16 of Professional
English in Use Finance or as a standalone lesson
for a business English class dealing with financial
business and American terminology. The balance
sheet was put together with the aid of Brenda Sorg,
Senior Credit Underwriter, Vice President, Wells
Fargo, New York and the explanations of the ratios
was done with the aid of Gottfried Fuchs, an officer
in the commercial loan restructuring department of
the Steiermaerkische Bank, Graz, Austria.
Lead-in (5 minutes)
Have students discuss in pairs or small groups
what they know about balance sheets and which
vocabulary they already know. Find out which
students have worked with balance sheets and ask
them about their experiences.
Note
Explain that the purpose of balance sheets is to report
the financial condition of a company at a specific
time. It is divided into two areas or columns which
must match up. The first part shows what a company
owns (its assets) and the second part shows what a
company owes (its liabilities). The balance sheet can
also be looked at to determine where the sources of
cash come from and how they are used. For more
information see:
http://ohioline.osu.edu/cd-fact/1154.html
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Reading/Speaking
Tasks
Match vocabulary terms to their definitions
Read through a balance sheet and correct a text
Analyze a balance sheet using ratios and discuss
the results
Vocabulary (15 minutes)
Students read through the terminology used on
balance sheets in pairs and match the expressions to
their definitions. Check the answers with the class.
Discuss any vocabulary which is unclear.
Answers
1g 2r 3p 4v 5k 6m 7b 8w 9d 10t 11h 12s 13i
14f 15a 16u 17l 18e 19n 20q 21c 22o 23j
Reading and comprehension (10 minutes)
Begin by reviewing words of change (verbs and
adjectives/adverbs) and linking words. Put the
students into pairs and have them read through the
news report while looking at the balance sheet.
Tell them that the report has a number of mistakes
in it and they have to find and correct them. The
students then rewrite the report correctly based on the
information they have.
Suggested answer
Looking back at the years 2008-2009, we note some
changes. Starting with the total current assets, it can
be seen that they increased year-over-year. Total
liabilities, however, were at 81,834 in 2008 and rose/
went up to 89,543 in 2009.
It can be noted that accounts receivable went up from
2008 and the allowance for doubtful accounts was
(also) raised/increased. All fixed assets stayed at
the same level although the amounts deducted for
depreciation were lower in 2008 than in 2009. The
value of total fixed assets was also higher in 2008 in
contrast to/ but not the sum for investments (which
was higher in 2009).
On the liability side, accounts payable indicated an
increase year-over-year as did the notes payable.
Current portion of long term debt remained stable but
accrued expenses rose slightly in 2009. Shareholder
equity showed no change except for retained
earnings, which went up.
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Reading/Speaking
Discussion (5 minutes) The quick ratio indicates short-term solvency and
(See Professional English in Use Finance, pages 36 the higher it is, the stronger the liquidity position. It
and 38) is more conservative than the current ratio because it
Students work in pairs to analyze the balance sheet excludes inventory.
using the different ratios. The equity ratio is common in Central Europe and
measures the amount of total assets financed by
Answers the stockholders and not by creditors and is used to
1. the current ratio determine how much debt the company has. This
2008 66,264 : 41,834 = 1.58 is often expressed as a percentage as shown above.
2009 77,442 : 54,543 = 1.42, Creditors look for this figure to be positive as this
2. the quick ratio (also known as the acid-test ratio) indicates that a company is in a good position to stay
2008 54,653 : 41,834 = 1.3 solvent. A percentage of 20% and higher is a good
2009 66,280 : 54,543 = 1.22 sign for creditors; the higher the percentage, the lower
3. the equity ratio the risk. However, comparing year-to-year is also
2008 67,632 :139,466 = 48% important here to see the trend. In this case, we can
2009 60,952 :150,495 = 40% see that in the year 2008 48% of the total assets were
4. leverage equity and 52% were financed by loans. In 2009 only
2008 81,834 : 57,632 = 1.42 40% were equity and 60% financed by loans.
2009 89,543 : 60,952 = 1.46 Gearing (leverage: US) shows how heavily the
company is leveraged or how much money they owe.
Note on the ratios In this case the ratio in 2008 was 1.42 meaning that
These ratios are used to determine solvency of a total liabilities were 42% higher than their equity
company, especially by creditors who are considering and in 2009 this figure increased to 1.46 meaning
giving loans or reviewing existing loans and credit liabilities were 46% higher than the equity meaning
lines. The year-to-year comparison is important the company had accumulated more debt.
because creditors can see if their are changes in the
company is ability to pay its debts.
If the current ratio is much higher than the quick
ratio, this indicates that the companys assets are more
dependent on its inventory. The higher the current
ratio, the better position a company is in to cover its
debts. If the current ratio is under 1.0, this suggests
that the company could not meet its obligations if they
came due at the time of the balance sheet. Creditors
generally prefer the current ratio to be high because
their risk is reduced while investors prefer it to be
low because this means the company has invested its
assets for its continuing operations. A current ratio
of about 1.5 or higher indicates that a company can
cover its operating needs successfully. If the figure is
too high, they may be keeping back assets rather than
using them for further investment in the future of the
company. It is important, as well, to compare these
year-to-year and note the trend.

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