12. Auditing the accounts of a limited company.

Every year the accounts of a limited company must be approved by auditors, acting on behalf of the shareholders. Their duty is to ensure that the directors are reporting correctly on the state of affairs of the company. They do not judge whether the directors are managing the company efficiently or not. That is something the shareholders must judge for themselves.

Until recently, the accounts of Harper&Grant have been audited by Hector Grant’s son-in-law, who is in private practice as an accountant. And now a new firm of auditors has now been appointed.

So, they have to be satisfied that everything which goes into making up the Profit Statement, the Balance Sheet and the Directors’ Report is correct.

The Profit Statement (Trading & Profit & Loss Account) shows how the profit for the year is arrived at. It starts with net sales or income and deduct surplus from which depreciation on plant and buildings, auditors’ fee, administration and selling costs must be deducted to produce net profit (or loss).

The Balance Sheet is a summarized statement, showing the amounts of funds employed in the business (usually consist of the issued share capital, reserves & retained earnings) and the sources from which they derived.

The totals on the two sides of the Balance Sheet must agree.

One of the most difficult jobs in preparing the accounts is stock valuation: that is putting a value on all goods in the hand of the company. It may seem easy, as goods could be counted and then the price paid for them could be checked against the supplier’s invoices. But the value of goods is often fluctuates. So, the rule for stock valuation is that it should be taken at cost price or market price, whichever is the lower.

13. The work in the Account Department. Debtors.

Collecting bad debts is one of the most difficult affairs in the work of the Accounts Department. Retail business is usually done on a cash basis, and wholesale business is done on credit, given for 30 days. Any company prefer to receive long credit from its suppliers.

For each individual sale an invoice is sent to the customer, that

is a list of the goods delivered and the amount owed, on that particular transaction. At the end of the month each customer is sent an account, showing the total amount due.

Any company likes to receive long credit from its suppliers and would like to give short credit to its customers. It is fairly common to offer an inducement to customers to pay earlier than they need by offering a small discount; that is, the customer pays slightly less if he pays within, say, ten days of the date of invoice.

Sometimes debtors cannot pay a credit, for example, in case of bankrupt of the company or dishonesty of people, running it.

Accounts not paid in time are called overdue accounts. In very difficult cases a firm employs a professional debt collector. No company wants to get a reputation for being a bad payer, because it will be difficult to get supplies on credit in the future. There are special agencies, which provide information about the financial situation almost of any company, so the suppliers can judge a credit risk.