UNIT TWO BOOKKEEPING

Ex 29. A. Study the following special terms and answer the questions below.

Asset: Anything of value or use to an organization. This includes cash, receivables, securities, property, and intangibles, such as goodwill. Goodwill is the extra value (such as a company's reputation and other intangibles) of a business not reflected in its financial statements. It is usually determined at the time of sale and purchase of a business. The word asset is frequently used in the plural.
Liability: An obligation that is owed by an organization: debts to other organizations for merchandise or services; wages owed to employees; accrued (owed but not yet paid) taxes; and payments due on loans or mortgages.
Capital: The investment in an organization or business by its owner or owners. Other terms often used instead of capital are owners' equity, often abbreviated 0E, and proprietorship.
Account: A record of the changes and balances in the value of an individual item listed in the ledger of an organization. An example of an asset account is the company's furniture and fixtures, usually listed as one item since it would be impractical to list every desk and chair. Each account, usually abbreviated а/с, frequently has its own page in the organization's ledger.
Double-entry: A method of bookkeeping in which the twofold effect of every entry is recorded, thus requiring two entries to record each transaction. By recording both effects of each transaction, this system offers protection against error.
Single-entry: Any bookkeeping system that does not include the complete results of each transaction. It is usually used by small companies or to keep track of specific accounts: for example, a checkbook which only keeps a record of the cash balance.
Debit: An amount entered on the left-hand side of an account. Asset and expense accounts are increased by debiting, that is, by entering amounts in the left-hand column. Debit is usually abbreviated DR.
Credit: An amount entered on the right-hand side of an account. Liability, capital, and income accounts are increased by crediting. that is, by entering amounts in the right-hand column. Credit is usually abbreviated CR.
Ledger: A listing of detailed accounts, such as a record comprising the accounts receivable of each customer. The general ledger is the book used to list all the account of an organization. Entries from all the journals are transferred to the ledger at regular intervals, usually monthly. This process is called posting. The ledger then serves as a summary of all the fiscal activity for that period.
Journal: A book in which transactions are recorded. In double-entry bookkeeping, both sides of the transaction—both the debit and the credit side—are entered in the journal.

|Date |DR |

Ex. 30. Read the text and answer the questions after it.

Bookkeeping

Bookkeeping is an essential accounting tool. A small business or company may employ only one bookkeeper, who records all of the financial data by hand; large organizations may employ many bookkeepers, who use electronic and mechanical equipment for a large part of their work. Each organization has its own bookkeeping requirements, but all systems operate on the same basic principles. The bookkeepers themselves must be accurate, good in math, and meticulous; that is, they must be very careful to record each detail in its proper place. About 3,000 b.c., the Sumerians, the Egyptians, and other peoples of the Middle East developed the first known business records. The results of tax collections, farming harvests, and the transactions of merchants were recorded by means of written numbers. The Romans, too, were prolific keepers of records. Indeed, Roman numerals were used in many parts of Europe until the fifteenth century a.d. The stimulus for modern bookkeeping came with the introduction of Arabic, or Hindu-Arabic, numerals and the decimal system in the twelfth century a.d. Most people today use Arabic numerals. The two basic systems of bookkeeping are double-entry and single-entry. The double-entry method was perfected by the merchants of Venice during the fifteenth century and is still used today. The basic principle of double-entry bookkeeping is that every transaction has a twofold effect. In other words, a value is received and a value is yielded or parted with. Both effects, which are equal in amount, must be entered completely in the bookkeeping records. An account is a record of the financial transactions that concerns one item or a group of similar items. The account includes categories of financial data for each area of interest during a specific period: the value at the beginning of a period, changes in value during the same period, and the value at the end of a period. The broad areas of interest can be labeled assets, liabilities, and net worth. Income and expense accounts are totaled at regular intervals, and the resulting profit or loss is posted to a capital account. Anything of value that a business or organization owns is commonly known as an asset. Asset accounts include cash, which is the money on hand or in the bank; furniture and fixtures; accounts receivable, the claims against customers that owe money; stock or inventory; office supplies; and many others that show what the organization owns. Debts owed to creditors are known as liabilities. If money is owed to an organization or person for things or services purchased on credit, this liability is called an account payable. Other liabilities include wages or salaries that are owed to employees, or taxes that have not yet been paid. The value of the business to the owner or owners is known as capital. Other terms used to designate capital are proprietorship, owners' equity (usually abbreviated OE), ownership, or net worth. A separate account is kept for each asset, liability, and capital item so that information can be recorded for each of them. Accounts are also maintained for income and for expenses, and like assets, liabilities, or capital, these accounts are also entered in the ledger, which is a detailed listing of all the accounts of an organization. Entries from all the journals are transferred to the ledger at regular intervals. This process—called posting—is usually done monthly. Journals, or books of original entry, are designed to record information about different transactions, including sales, purchases, cash receipts, cash disbursements, and many others. Journals have two or more columns to record increases or decreases in the accounts affected by the transaction, and they often have space for a date and an explanation of the transaction. All transactions affect at least two accounts. Each transaction must be analyzed to determine which accounts are affected, and whether they should be increased or decreased. An entry made on the left-hand side or column of an account is called a debit, white an entry made on the right-hand side or

| CASH A/C |
| | | | | |
|DATE |EXPLANATON |DR |CR |BALANCE |
| | | | | |
|9/1/77 |Cash in Bank | | | 412.50 |
|9/2/77 |Cash Sales |254.56 | | 667.06 |
| |Rent Paid | |500.00 | 167.06 |
|9/3/77 |Bank Loan |5,000.00 | |5,167.06 |
|9/4/77 |Sales Tax Paid (Aug. 1977) | |187.60 |4,979.46 |
| |Payroll | |1,000.00 |3,979.46 |
| |Cash Sales |612.00 | |4,591.46 |

A cash journal.

column is a credit. Debit, usually abbreviated DR, at one time meant value received, or literally he owes. Credit, usually abbreviated CR, meant value parted with, or literally he trusts. In modern bookkeeping, debit refers only to the left-hand side of an account, whereas credit refers to the right-hand side. Some bookkeepers use a far right-hand column to keep an up-to-date balance of the account. From the basic accounting formula, that is,

assets = liabilities + owners' equity (or capital), certain guidelines have evolved through general agreement and custom. Asset accounts are increased by debiting, that is, on the left side, and they are decreased by crediting, that is, on the right side. The opposite is true for liability and proprietorship accounts, which are increased on the credit side and decreased on the debit side.
| Assets = Liabilities + Owners’ Equity |
| Asset A/C’s | |Liability A/C’s | |Proprietorship A/C’s |
| DR | CR | | DR | CR | | DR | CR |
|+ |- | |- |+ | |- |+ |

Income and expense accounts represent changes in equity. Income increases proprietorship, while expenses decrease proprietorship. Income accounts are increased on the credit side and decreased on the debit side, while expense accounts are increased on the debit side and decreased on the credit side.
| Expense A/C’s Income |
|A/C’s |
| DR | CR |CR |
|+ |DR |+ |
| |- | |
| |- | |

Since every transaction affects at least two accounts, at least two entries must be made in the journal. When Morgan's Appliance Store, for example, sells a refrigerator for $260, the bookkeeper debits the cash account (asset) and credits the sales account (income) by $260. On the day that Mr. Morgan pays his monthly rent of $500, the bookkeeper debits the rent account (expense) and credits the cash account (asset) by $500. Regularly and at fixed intervals, usually monthly, the bookkeeper posts all the entries from each journal to the appropriate account in the general ledger. The bookkeeper then foots, or totals, the columns of each account; that is, he or she adds the amounts of the debits and credits and records the balance of each account. Since debits are always recorded in amounts equal to credits, the debits and credits should always equal each other. The test that determines whether the total of debits equals the total of credits is called a trial balance. If the accounts are not balanced, some error has been made which the. bookkeeper must find and correct. The financial statements of a company help management to evaluate and direct the operations of an organization. The second basic system of bookkeeping, as mentioned previously, is called the single-entry method. This method refers to any system that does not include the complete results of every transaction. The most common type of single-entry bookkeeping involves records of cash, accounts receivable, and accounts payable. Many bookkeeping systems include journals and records for specific types of transactions. Special purchase books, for example, include invoice and voucher registers. Invoices are itemized statements of merchandise sold to a customer; they list the quantity and the charges. Vouchers are bills received for merchandise or services. One important, widely used journal is the cash disbursement register, which records the details of all checks written: to whom, when, how much, and for what purpose. Another popular journal is the cash receipts journal, in which all payments received are recorded. Bookkeepers are also responsible for maintaining the records of a company, including, of course, the computation of taxes that are to be deducted and withheld, and the completion of government forms that are required for tax and other employment purposes. In a small company, the bookkeeper may also function as a cashier, as an assistant to the manager, or in any number of clerical jobs. Larger firms have staffs of bookkeepers ranging from as few as two or three to several hundred. They often use special forms and high-speed computing and tabulating machines, but basic bookkeeping rules are the same. Regardless of the size of the operation, the bookkeeper is a key person in the organization's system of financial information.

1. How do bookkeeping procedures in a large organization differ from those in a small one? Are the basic principles the same or different?
2. What are some of the basic requirements for a bookkeeper?
3. When were the first known business records kept? By whom? What land of records were kept?
4. How did modern bookkeeping begin?
5. What are the two basic methods of bookkeeping?
6. When was the double-entry method introduced? By whom? What is its basic principle?
7. What is an account? What are the three categories of financial data listed in an account?
8. What broad areas of interest is bookkeeping concerned with?
9. What is the difference between an asset and a liability? Give an example of each.
10. What is the term used for the value of a business to its owners? What other terms refer to the same concept?
11. What is a ledger? What types of accounts are entered in it?
12. What is posting?
13. What information is recorded in journals?
14. On which side of an account are debits entered? On which side are credits entered? What do these terms mean literally? How are they commonly abbreviated?
15. For what purpose do some bookkeepers use a far right-hand column in their ledgers?
16. What is the basic accounting formula?
17. How are asset and expense accounts decreased? How are they increased?
18. How are liability, capital, and income accounts decreased? How are they increased?
19. Describe the entries to be made by a bookkeeper for a furniture store when (a) a couch is sold for $300, and (b) when the janitor is paid his weekly salary of $175.
20. What is the process by which entries are made in the ledger?
21. What is the purpose of footing, or totaling, the columns of an account?
22. What does it mean if the debits and credits in a ledger are not balanced?
23. What is not included in single-entry bookkeeping? What type of record is commonly kept by means of the single-entry method?
24. What are some of the specific types of transactions that are frequently recorded by bookkeepers?
25. What are some of the other records that a bookkeeper often keeps?
26. Why is a bookkeeper a key person in an organization?

B. Find English equivalents for the following Russian phrases from the text.

финансовые данные, электронное оборудование, требование, сбор нало-гов, сделка, бухгалтерский учет по методу двойной записи, регистрация опе-раций одной записью, усовершенствовать, активы, пассивы, чистая стои-мость, проводить запись, наличные, дебиторская задолженность, товарно-материальные запасы, кредиторская задолженность, жалование, зарпла-та, собственность, акционерный капитал, гроссбух, ведомость, дебет, кредит, левая колонка, правая колонка, увеличивать, уменьшать, ввод, доход, затраты, пробный баланс, счет-фактура, расписка, счет, расчеты.

Ex. 31. Complete the text using the words from the box:

| |
|suppliers private cash book debtors recording |
| |
|transactions withdrawn bank accounts credit customers |

Divisions of the Ledger

Thinking of the ledger as one book containing all the accounts has one obvious disadvantage. Only one person may use it at any one time. This might not matter in a small business where there are only a few __________ (1) each day. In a larger business, however, where there may be many different transactions, and more than one accounts clerk employed, real difficulties will be encountered. The idea of subdividing the ledger to enable the work of ______________ (2) transactions to be shared and carried out more efficiently appealed to many businesses. The diagram below summarises the main ways in which this was done.

|S | |
|t | |
|a |General ledger |
|g | |
|e | |
| | | |
|1 |General ledger |Cash |
| | |book |
|2 |General ledger |Debtors’ |Creditors’ |Cash |
| | |ledger |Ledger |book |
|3 |General |Private |Debtors’ |Creditors’ |Cash |
| |ledger |ledger |ledger |Ledger |book |

The first stage is to take out the two accounts which are most used - the cash account and bank account - and place them in a separate book, which becomes known as the __________ (3) . All other accounts remain in the general ledger. The second stage involves extracting from the general ledger the debtors and creditors accounts. These are then kept in their own separate books. Note that the terms 'purchases ledger' and 'bought ledger' are sometimes used instead of creditors' ledger, and 'sales ledger' instead of debtors' ledger. Goods purchased on ___________ (4) are bought from creditors. Sales on credit are made to debtors. Whichever terms you choose, it is best to use them consistently. The names of the new divisions of the ledger are a good indication of the accounts contained within them. This is true also when the third stage is reached and some accounts are _________ (5) and placed in the private ledger. Clearly such a book will contain any accounts which the owner wishes to keep _________ (6). The capital account is one example, and drawings account is another. Again all other accounts not withdrawn into a separate book remain in the general ledger. It should not be thought that these stages have to occur in the order we have given. Some owners might have decided to extract their private accounts from the prying eyes of their clerk before even considering the practical advantages to be gained by putting the cash and ___________ (7) together in the cash book. Nor should it be thought that all businesses which open a debtors' ledger will automatically open a creditors' ledger. A business with a large number of _________ (8), to whom it sells on credit, will probably find it advantageous to have a separate ledger to contain them. If, however, it purchases stock from only a few ___________ (9) it might not be worth taking these accounts out of the general ledger. Further, there is nothing to prevent a business subdividing its accounts to an even greater extent than the diagram suggests. One common occurrence, for example, is for businesses with large numbers of debtors' accounts to have them entered on cards and kept in a filing system. These ________ (10) might be filed alphabetically in a drawer with A-D kept separate from E-H, etc. The diagram does, however, give a general summary of how a ledger might be subdivided.

Ex. 32. A Complete the text using these words:

| |
|credits debits double-entry invoice |
|journals ledger posted |
|receipt |
|transactions transferred trial balance vouchers |

Bookkeeping

Bookkeepers record every purchase and sale that a business makes, in the order that they cake 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.

B. Add appropriate verbs from the text above to these sentences:

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.

C. Think of your own sentences, using the word combinations with “bookkeeping”.

costs department impact machine
BOOKKEEPING material operation practices routine schedule transactions