Vocabulary

Part II

profit accounting records bookkeeper cash book ledger journal accountant profit and loss account trading account balance sheet transaction accounts department clerk

money gained in business. books containing entries of money received and spent. a person who writes up the account of a business. a book used in bookkeeping for recording money received and spent in a business. a book containing separate pages for each item of an account, e.g. sales, purchases, rent etc. a daily record of business accounts. It is only used for recording accounts which can’t be shown in other books such as cash book, a ledger etc. a person whose profession is to record and examine business accounts. an account which shows the expenses and income of a business for a period, the difference of which will show the net profit or loss of the business for that period. an account which reveals the gross profit of a business for a period of time. a statement of figures which shows a company’s assets and liabilities for a year. a piece of business. the division of a company which deals with accounts. a person employed in a bank, office, shop etc. to keep records, type letters etc.

Explanations

Part III

Sales book. The book records the daily sales of a company and is totalled every month.

Purchases book. The book is similar to the sales book except that it records purchases.

A cash book records the daily receipts and payments of a company. There are separate columns to record cash and bank entries.

The ledger is a book containing separate pages for each account related to receipts, payments, assets and liabilities. It is a book to which records of accounts are transferred as final entries. The accounts are original postings from books such as a cash book, purchases book, sales book etc.

A journal is a book of original entries in a double entry system which records all transactions and indicates the accounts to which they belong.

The trading account is prepared primarily to ascertain the gross profit and the cost of goods sold.

The profit and loss account shows all the items of income and expenses to enable the calculation of the net profit or net loss of the business, normally at the end of an accounting year.

The balance sheet is a statement of the assets and liabilities of a business or an individual at a specified date, usually at a year’s end.

Net profit. This is the profit left after all expenses have been deducted from the gross profit.

Assets are a person’s or business’ properties and claims against others. These assets appear in the balance sheet and may be used directly or indirectly to cover liabilities.

Liabilities are financial obligations stated in a balance sheet of a company. They include such items as creditors, capital of the proprietor, partner or shareholder, bank overdraft and loans.

Petty cash. It is a small sum of money, often left with a secretary or clerk for incidental expenses in an office. The book recording the receipt and expenditure of this money is called the petty cash book.

Creditor. A person or company to whom money is owed. Goods supplied to a buyer may be paid for after a period of time. The supplier will appear in the buyer’s book as a creditor.

Debtor. A person or company owing money to another. Company A may supply goods to company B. Payment has been promised by B in 30 days. In the books of A, B is a debtor. By the same transaction, in the books of B, A is a creditor.

Exercises

1. Answer the following questions.

   1. Why is the keeping of accounts an important aspect of work?

   2. What are the usual accounting books?

   3. What annual accounts can be prepared from the accounting books?

   4. Who assists an accountant with his work?

   5. What two important pieces of information can be obtained from the trading account?

2. Give the meanings of the following words.

   1. Profit. 2. Cash book. 3. Transaction. 4. Ledger. 5. Accountant.

3. Give the word that fits the description.

   1. A person employed in a bank, office, shop etc. to keep records, type letters etc.

   2. An account which reveals the gross profit of a business for a period of time.

   3. A statement of figures which shows a company’s assets and liabilities for a year.

Conversation about accounts

Part I

Mr Robin. Perhaps today we can talk about accounts.

Mr Smith. Yes, why not.

Mr Robin. Does your company keep accounts?

Mr Smith. Certainly. We can’t do without them.

Mr Robin. Why are they so important?

Mr Smith. They will tell us whether we are making money or losing it.

Mr Robin. How does the system work?

Mr Smith. Every trading activity whether it is a sale, purchase or an expense is written down.

Mr Robin What happens after that?

Mr Smith. We group the entries of each account in the ledger.

Mr Robin. What will the ledger show?

Mr Smith. It will show the accounts for income, expenses, assets and liabilities.

Mr Robin. What are purchases?

Mr Smith. They are the goods bought for trading.

Mr Robin. What are sales?

Mr Smith. They are the goods sold.

Mr Robin. What are some of the expenses?

Mr Smith. They include salaries, rent, advertising, travelling expenses and insurance.

Mr Robin. Who does the recording of these accounts?

Mr Smith. Our bookkeeper does it.

Mr Robin. Do you have an accountant?

Mr Smith. As ours is a small company, we have only a part-time accountant.

Mr Robin. How does he help?

Mr Smith. As an external accountant, he checks our accounts from time to

time.

Mr Robin. Is that all he does?

Mr Smith. He also finalises our accounts for the financial year and advises

us on income tax matters.

Mr Robin. How does income tax affect your company?

Mr Smith. Our company has to pay income tax amounting to 40% of our net

profit.

Mr Robin. What happens if your company suffers a loss?

Mr Smith. No income tax is then payable.

Mr Robin. What does company law require you to do?

Mr Smith. Among other things, we are required to keep a record of our

trading.

Mr Robin. What is contained in these records?

Mr Smith. They contain facts and figures about the goods we have bought and sold.

Mr Robin. What else do you have to do?

Mr Smith. We must trade honestly.