Language practice

I Match the words to their definitions.

a) Sales Ledger	1) it is the main liquidity ratio
b) Purchases Ledger	2) it is used to calculate net profit
c) Cash Book	3) it stores the other accounts
d) Nominal Ledger	4) it contains records of cash and bank transactions
e) Profit and Loss account	5) it is used to analyze financial information
f) Balance Sheet	6) it is used to show the firm’s financial position
g) Accounting ratio	7) it is the difference between the current assets and current liabilities
h) Current Ratio	8) it holds the accounts of creditors
i) Working Capital	9) it contains the accounts of debtors

II. Complete the sentences below using the information of the text.

1. Customers buying on credit are called … . 2. Suppliers of goods on credit are called … . 3. All accounts are presented and summarized in the firm’s final … . 4. The purpose of Balance Sheet is to show the firm’s … position. 5. Cash flow statements analyze the movements in the cash and bank … . 6. The firm’s … is its ability to meet its debts as they fall due. 7. ROCE shows the rate of … on capital. 8. Stock, debtors and cash are the current … . 9. Creditors and bank overdraft are the current … . 10. Efficiency ratios are also used by … .

III Say whether these statements are true or false, and if they are false say why.

1. The role of a public sector firm’s accounting function is to record, present and analyze financial information. 2. The Sales Ledger contains the accounts of debtors. 3. The Purchases Ledger contains records of cash and bank transactions. 4. The purpose of Profit and Loss account is to show the firm’s financial position. 5. The firm’s liquidity is its ability to meet its debts as they fall due. 6. Accounting ratios are used to improve financial information. 7. Two major profitability ratios are ROCE and Net Profit Margin. 8. Net Profit Margin gives information on whether the selling price could be raised in an attempt to increase sales. 9. The main liquidity ratio is the Current Ratio. 10. The difference between the current assets and current liabilities is called Working Capital. 11. In practice, many large firms, especially in the retail sector, have a positive working capital. 12. Accountants also add stock to the Current Assets total to calculate the Liquid Assets ratio. 13. The Liquid Assets ratio is also known as the Acid Test ratio. 14. The Rate of Stock Turnover calculates the number of times the firm’s average stock is sold or ‘turned over’ during one month.

IV Answer the following questions.

1. What is the role of a private sector firm’s accounting function? 2. What kind of accounts does the sales ledger contain? 3. What can you say about the purchases ledger? 4. Which ledger contains records of cash and bank transactions? 5. What do you know about the nominal ledger? 6. What is the purpose of profit and loss account? 7. What is the purpose of Balance Sheet? 8. Who produces cash flow statements and why? 9. How is the difference between the current assets and current liabilities called? 10. Why do accountants remove stock from the Current Assets total? 11. By whom are efficiency ratios used? 12. What can you say about the rate of stock turnover?