Bookkeeping

Unit 4 Bookkeeping

GETTING STARTED

1. Scan the passage below and identify its subject.

In attempting to explain why double entry bookkeeping developed in fourteenth century Italy instead of ancient Greece or Rome, accounting scholar A.C. Littleton describes seven "key ingredients" which led to its creation:

Private property, Capital, Commerce, Credit, Writing, Money, Arithmetic

Many of these factors did exist in ancient times, but until the middle ages they were not found together in a form and strength necessary to push man to the innovation of double entry. Nevertheless, the problems encountered by the ancients with record keeping, control and verification of financial transactions were not entirely different than our own today. Governments, in particular, had strong incentives to keep careful records of receipts and disbursements – particularly as concerns taxes. And in any society where individuals accumulated wealth, there was a desire by the rich to perform audits on the honesty and skill of slaves and employees entrusted with asset management.

2. Answer the following questions based on the reading.

1. When did double entry bookkeeping develop?
2. What are the seven "key ingredients" which led to the creation of double entry bookkeeping?
3. What similar reasons for keeping careful records of financial transactions have existed both in the past and at present?

USEFUL VOCABULARY

Make sure you know the following words and word combinations.

accounting cycle	цикл бухгалтерского учета
accurate adj	точный, правильный; тщательный
receipts n pl.	денежные поступления, выручка; приход; доходы
data n pl. (datum sg)	данные
record n (records pl)	запись; регистрация, записывать; pl. учетные документы; документация
record-keeping	ведение учета; учет
statement n	отчет; ведомость; смета
financial statements	финансовая документация
general journal	главный журнал учета
general ledger	главная бухгалтерская  книга
to balance the ledgers	сбалансировать бухгалтерские  книги
posting	разноска по счетам, перенос  в бухгалтерскую книгу; проводка
ledger posting	запись в главную  бухгалтерскую книгу
to post the journal into the ledger	переносить журнальные записи в главную книгу
draw up	составлять
to draw up a balance	подводить (составлять) баланс
trial balance	пробный, предварительный  бухгалтерский баланс
balance n balance v	баланс; сальдо; остаток подсчитывать, подытоживать; сводить, заключать, закрывать (счета, книги)
to bring accounts to a balance	составлять сводный баланс
favourable balance	активный баланс; положительный  баланс
unfavourable balance syn. adverse balance	пассивный баланс; отрицательный  баланс
cash balance	кассовая наличность
balance of an account	остаток счета
balances with foreign banks	остатки на счетах в заграничных банках
balance in hand	денежная наличность; наличность кассы
balance of payments	платежный баланс (отчетность, характеризующая участие страны в международном обмене, включающая в себя текущий платежный баланс и баланс движения капиталов)
balance of trade	торговый баланс (отчетность, отражающая результаты участия страны в международной торговле)
debit ['debit] n	дебет (расход)
debit account	запись в левой части  счета, показывающая задолженность  организации
debit of an account	дебет счета; списание средств со счета
debit balance	дебетовое сальдо, дебетовый  баланс, положительное сальдо
debit (to an account) v	дебетовать; записывать; вносить в дебет
credit ['kredit] n	бухгалтерский  кредит; сумма, записанная на приход в правой части счета
credit account	запись в правой части  счета, отражающая приход актива
credit balance	кредитовое сальдо; кредитовый баланс, отрицательное сальдо
credit (to an account)	кредитовать счет; записывать сумму в кредит счета

READING

1. Scan through the text to find the answers to the following questions.

● What kind of information is of great importance for proper company management?

● What is the difference between bookkeeping and accounting?

Bookkeeping

For management of any company to be efficient, extensive and accurate information concerning receipts and payments, assets and liabilities, depreciation of assets and other data about company status are required. Such information being obtained mainly from different records, additional funds and time should be invested in bookkeeping and accounting system.

In general, accounting and bookkeeping mean identifying, measuring, recording economic information about any business, bookkeeping being considered the preliminary stage and part of the larger field of accounting.

The task of a bookkeeper is to ensure the record-keeping aspect of accounting and therefore to provide the data to which accounting principles are applied in the preparation of financial statements. Bookkeeping provides the basic accounting data by systematical recording of such day-to-day financial information as income from the sale of products or services, expenses of business operations such as the cost of the goods sold and overhead expenses¹ such as a rent, wages, salaries.

Accounting principles determine which financial events and transactions should be recorded in the bookkeeper's books. The analysis and interpretation of these records is the primary function of accounting. The various financial statements produced by accountants then provide managers with the basis for future financial planning and control, and provide other interested parties (investors, the government) with useful information about the company.

Modern accounting system is considered to be a seven-step cycle. The first three steps fall under the bookkeeping function, such as: 1) the systematic recording of financial transactions; 2) the transferring of the amounts from various journals to general ledger (also called "posting step"); 3) the drawing up of the trial balance.

Record keeping of companies is based on a double-entry system, due to which each transaction is recorded on the basis of its dual impact on the company's financial position. To make a complete bookkeeping record of every transaction in a journal, one should consider interrelated aspects of every transaction, and entries must be made in different accounts to keep the ins (receipts) and outs (payments) balanced.

A typical account is known to have two sides: the items on the left side are called debits, while the items on the right side are credits.

Thus, double-entry bookkeeping doesn't mean that the same transaction is entered twice, it means that the same amount of money is always debited to one account and credited to another account, each record having its own effect on the whole financial structure of the company. Certain accounts are increased with debits and decreased with credits, while other accounts are increased with credits and decreased with debits.

In the second step in the accounting cycle, the amounts from the various journals are usually monthly transferred to the company's general ledger − a procedure called posting. Posting data to the ledgers is followed by listing the balances of all the accounts and calculating whether the sum of all the debit balances agrees with the sum of all the credit balances. This procedure known as the drawing up of a trial balance and those that follow it usually take place at the end of the fiscal year. By making a trial balance, the record-keeping accuracy can be checked. The trial balance having been successfully prepared, the bookkeeping portion of the accounting cycle is completed.

The double-entry system of bookkeeping enables every company to determine at any time the value of each item that is owned, how much of this value belongs to creditors, the total profit and how much belongs to the business clear of debt. Thus, one advantage of the double-entry system is that its information is complete enough to be used as the basis for making business decisions. Another advantage is that errors are readily detected, since the system is based on equations that must always be in balance.

Notes:

1. overhead expenses - накладные расходы

2. dual impact – двойное воздействие

2. Read the text again and answer the following questions.

1) What role does bookkeeping play in the accounting cycle? 2) What kind of data is collected by a bookkeeper? 3) Who is interested in obtaining accurate accounting information? 4) What is the modern concept of the accounting system?

5) What tasks should a bookkeeper fulfil at the first three steps of the accounting cycle? 6) What does double-entry bookkeeping mean? 7) What data are recorded in the company's general ledger? 8) When is the bookkeeping cycle considered to be completed?  9) What are the advantages of the double-entry system?

 

DEVELOPING VOCABULARY

1. Fill in the missing words and word combinations from the list given. One word is used twice:

ledger posting balance list bookkeeping debits records

double entry ins records receipts record keeping journals

outs ledges statements accuracy errors preliminary

1) Every company needs some way of keeping systematic ... about all transactions that have taken place, all this information being necessary to prepare further financial ... .

2) The most commonly used ... ... books are known to be called ... and ... .

3)  ... ... to the general ledger is usually done in the second step of the accounting cycle.

4) The ... ... system is based on the equations that should be always kept in ...: payments must equal ..., and credits must balance ... .

5) The ... cycle is considered to be completed when the ... ... has been drawn up.

6) The laboratories are doing some ... experiments before starting work on this project.

7) ... and responsibility are sure to be the main qualities of any bookkeeper.

8) Economists expect new computer programmes to be very helpful in detecting possible ... in the accounting system.

9) In accounting and banking a ... is calculated as the difference between the total amount of money coming into (known as ...) and money going out of (known as ...) an account.

10) The balance sheet is known to ... the assets the firm owns and the liabilities for which it is responsible at a given period of time.

2. Choose the appropriate words from the brackets to complete the sentences; translate the sentences into Russian.

1) The accounting cycle is known to consist of seven main steps, the (bookkeeping/accounting) being responsible for the analysis and interpretation of the (records/entries).

2) Having drawn up the (balance sheet/trial balance), the bookkeeper expects the final financial (accounts/statements) to be prepared in the (accounting/managerial) department.

3) A bookkeeper deals with taxes, cash flow which includes cash (receipts/credits) and (debits/payments), sales, purchases and different other business (activities / transactions).

4) Bookkeepers first (post/record) all the data in the books which are called (ledgers/journals).

5) The record-keeping (accuracy/accurately) can't be checked until total debits and total credits are added together.

6) Disagreement between the total of the (debits/receipts) and the total of the (payments/credits) in the trial balance means that there is an error in the records.

7) A ledger is a book having one page for each (entry/account) in the organization's financial structure, (debits/credits) being shown on the left side.

8) All items of tangible assets should be (posted/listed) accurately before calculating their depreciation.

9) If sources exceed uses, there will be (a balance/an excess) of cash representing funds provided but not yet put to use in the business.

3. Complete the text using these words from the box.

credits journals transactions

debits ledger transferred

double-entry posted trial balance

invoice receipt vouchers

Bookkeepers record every purchase and sale that a business makes, in the order that they take place, in (1) ....... . At a later date, these temporary records are entered in or (2) ....... to the relevant account book or (3). ....... . Of course the "books" these days are likely to be computer files. At the end of an accounting period, all the relevant totals are (4) ……. to the profit and loss account. (5) ....... bookkeeping records the dual effect of every transaction -a value both received and parted with. Payments made or (6) ....... are entered on the left-hand (debtor) side of an account, and payments received or (7) ....... on the right-hand side. Bookkeepers will periodically do a (8) ....... to test whether both sides of an account book match. In most business (9) ......., the seller of goods or services sends the buyer a bill or (10) ......... and later a (11) ........ acknowledging payment. Businesses are obliged to retain the documents − known as (12) ........ − that support or prove an item in an account, and make them available to the internal and external auditors who check the accounts. Bookkeepers are not to be confused with librarians, who also keep books, or with bookmakers, who "make books" in the sense that they accept bets (on horse races, etc.) and traditionally wrote them down in a book like a bookkeeper's journal. Accountants, unlike bookkeepers, analyse financial records, and decide how to present them.

4. Complete the sentences with appropriate verbs.

1) Bookkeepers ........ business transactions.

2) A debit is a payment ........ .

3) A credit is a payment ........ .

4) Debits are ........ on the left-hand side.

5) At the bottom of the page, bookkeepers ......... the totals.

6) Companies have to ........ invoices and receipts.

7) The auditors ........ the accounts.

8) Accountants, managers and shareholders ........ the accounts.

 

DISCOVERING LANGUAGE

1. Fill in the prepositions of (9), on (2), in (7), by (I) and below (2) in the following text.

The simplest set ... double entry books consists ... a journal and a ledger. When a transaction occurs, it is not entered directly ... the account, but it is first recorded ... a book ... original entries known as a journal. Several kinds ... journals are used ... a bookkeeper, the general journal being the most common type. To list some recurring (повторяющийся) transactions special journals such as sales, purchases, cash-receipts and cash-disbursements (выплаты) journals are widely used ... bookkeeping. Transactions that cannot be registered ... a special journal and all entries that cannot affect cash are recorded ... a general journal.

In a general journal the title ... the account to be debited is placed ... the top line, with its amount shown ... the debit column. The title ... the account that is to be credited is shown ... it, with its amount placed ... the credit column. ... this may be a written explanation ... the transaction. The total... the debits column should always equal the total ... the credits column ... each general journal page.

2. Complete the following sentences by using Gerunds of the verbs in brackets; translate the sentences into Russian.

1) (То keep) records accurately is very important both for a company and tax authorities (власти). 2) After (to post) the data the bookkeeper began (to calculate) debit and credit balances. 3) Double-entry bookkeeping speeds up (to check) accounts by (to show) whether they are in balance. 4) The bookkeeper informed the Financial Manager of the first three steps of the accounting cycle (to complete) by his department. 5) The bookkeeper remembered (to record) the data concerning this transaction on the computer. 6) The company's manager insists on (to keep) detail recording of daily sales by all salesmen (продавец). 7) The director was against the idea of a preliminary meeting (to hold) before the main conference. 8) In (to decide) how much labour to employ, the firm looks for the highest possible profit. 9) The new inexperienced bookkeeper was suspected of (not to detect) the error while (to check) the company's debits and credits. 10) The accountant is interested in the trial balance (to draw up) by the bookkeeper as soon as possible.

 

FOCUS ON FUNCTIONS

The Language of Figures

In business, people are constantly working with figures. Invoicing, cash flow projections, profit and loss accounts, sale forecasts and so on, all involve figures and calculations. Make sure you remember how to write and say figures correctly.

1. Referring to round figures

1.1 In British English, for numbers over 100, the word and is used before the last two figures. This is not the case in American English.

241 − two hundred and forty-one (AmE: two hundred forty-one).

5,007 − five thousand and seven (AmE: five thousand seven).

Note that a comma (,) separates the thousands from the other figures.

1.2 For a number over 100, e.g. 125, we would say:

a hundred (and) twenty-five

but for 4,125 we would say: four thousand one hundred (and) twenty-five (not * a hundred).

We say a thousand (= 1,000) but one thousand before a number of hundreds:

1,600 − one thousand six hundred

1.3 The numbers hundred, thousand, million and billion do not usually take 's' when we refer to a precise figure.

We spent exactly five thousand dollars.

nine million six hundred (and) five thousand three hundred and sixty one. (9,605,361)

1.4 Hundreds /thousands /millions are used for approximate amounts:

We spent hundreds of thousands of dollars on travel last year.

1.5 The abbreviation for million is m; bn is used for billion:  $250m;

a potential market of 1 bn people (A billion is a thousand million, (1,000,000,000)).

2. Percentages

2.1 Per cent is the British spelling, the American English spelling is percent. (The stress is on the second syllable per cent).

2.2 Note that an expression like increase the rate from 4 to 6 per cent is ambiguous. It may mean that it is now 4 per cent and may become 6 per cent or that the increase is between 4 and 6. It is better to say: an increase of between 4 and 6 per cent.

When there is a dash between two figures it is pronounced to: 20-30% from twenty to thirty per cent

3. Decimals

We use a decimal point (.) to divide the whole number from the number less than zero. Decimals are said as: 0.06 − nought point nought six; 0.24 - nought point two four; 1.375 − one point three seven five; 92.8 − ninety  two point eight.

In American English, the word nought is replaced by zero (Zero point two four).

4. Fractions

Fractions are expressed as follows:

1/6 a (/one) sixth (16.6%)

1/3 a (/one) third (33.3%)

1/5 a (/one) fifth (20%)

3/4 a three quarters (75%)

5. Ratio

The relationship between two figures is often expressed as a ratio. For example, instead of saying: Only 25% of customers preferred the new line we could write or say: Only one out of four customers preferred the new line. Only one in four... .

If you see two figures with a colon between them, e.g. 1:7 you would say a ratio of one to seven.

6. Numerical adjectives

When a number comes before a noun used as an adjective, the noun does not have an s: A ten pound note; a sixty dollar check a three hour flight; a two hundred million dollar loan

2. Write these numbers out as you would say them:

243   1,001   9,247   2bn   $125m   0.05   8,980,000  

5.8   2/3   5/9   1:3

3.  Complete the table.

1/2	a half	50%
-/3		66%
-/4		25%
-/4		75%
-/5		40%
5/6	five sixths	83%
-/10		90%