Text 2. Book-keeping and Accounting

In general, accounting and book-keeping mean identifying, measuring and recording economic information about any business.

Book-keeping is considered the preliminary stage and part of the larger field of accounting. It provides the basic accounting data by systematic recording such day-to-day financial information as income from the sale of products or services, expenses of business operations and overhead expenses such as a rent, wages, salaries, etc. Accounting principles determine which financial events and transactions should be recorded in the book-keeper’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 book-keeping function. They are: 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. 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 is known as the drawing up of a trial balance and takes place at the end of the fiscal year.

Having prepared the trial balance a book-keeper passes on the information to the accountant who carries out the last four steps such as: 1) calculate adjustments; 2) prepare adjusted trial balance; 3) prepare financial statements; 4) close entries.

Calculating adjustments the accountant should consider the following: increased revenue (for example, interest earned but not yet received); any government taxes or employee salaries that have not yet been paid; the value of the office supplies that have been used (electricity, water), etc. On the second step when the adjustments are calculated, the accountant prepares an adjusted trial balance that combines the original trial balance with the effects of the adjustments. The preparation of the organization’s financial statements such as a balance sheet and an income statement is the main purpose of the third step. The final step comprises a series of book-keeping debits and credits to transfer sums from income statement accounts into owner’s equity accounts, and thus into capital.

Text-based Exercises

Ex.1. Find the adjectives in the text (paragraphs 1, 2, 3) which mean the following. Read the word-combinations with these adjectives and translate them into Russian.

a) concerning economy; (sentence 1)

b) preparatory, introductory; (sentence 2)

c) methodical, regular; (sentence 3)

d) above, apart from cost of production; (sentence 3)

e) dealing with money; (sentence 4)

f) fundamental, initial; (sentence 5)

g) diverse, of several kinds; (sentence 6)

h) common, habitual; (sentence 6)

Ex.2. Answer the following questions.

1. What do accounting and book-keeping mean in general?

2. Why is book-keeping considered the preliminary stage and part of the larger field of accounting?

3. What is the primary function of accounting?

4. What do the various financial statements produced by accountants provide managers and other interested parties with?

Ex.3. According to the text, are the following sentences true or false? If they are false, say why.

1. Record keeping of companies is based on a double-entry system.

2. Each transaction is recorded on the basis of its dual impact on the company’s financial position.

3. In the second step in the accounting cycle a book-keeper records all transactions into journals.

4. 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 is called posting.

5. Drawing up of a trial balance takes place at the end of each month.

Ex.4. Choose the appropriate word to complete the sentences.

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. Book-keeping provides the basic accounting data by systematic (recording/analysis) day-to-day financial information.

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

4. The various financial statements produced by (accountants/book-keepers) provide managers with the basis for future financial planning.

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

6. The drawing up of a (trial balance/balance sheet) can't be made until total debits and total credits are added together.

7. On the second step when the adjustments are calculated, the accountant prepares an (income statement/adjusted trial balance).

8. The preparation of the organization’s (systematic records/financial statements) such as a balance sheet and an income statement is the main purpose of the third step.

Ex.5. Make up sentences, joining the two halves of them.

1. A special book known as a journal is used 2. Double-entry bookkeeping is a system of recording accounts where 3. The posting procedure consists of 4. Having prepared the trial balance 5. Bookkeeping as part of the accounting cycle deals with 6. A bookkeeper is sure to be fully responsible for 7. Calculating adjustments the accountant should consider

a. regular transferring entries from the journal to the appropriate accounts in the ledger. b. for recording all primary information about any business transaction. c. the accurate performance of the first three steps in the accounting cycle. d. increased revenue, government taxes or employee salaries, the value of the office supplies. e. recording all money received by and paid out of a company in special books or computer files. f. a book-keeper passes on the information to the accountant. g. each sale or purchase is shown as having dual impact on the company’s financial position.

Ex.6. Make up a plan of an accounting cycle which is used to reflect a financial position of a company.

1) the posting of the amounts form journals to the general ledger at the end of a month;

2) the calculation of moral and physical depreciation of the capital assets;

3) the recording of the data about a transaction in journals;

4) the preparation of the financial statements on the basis of a balance sheet;

5) the preparation of the adjustments caused by depreciation of the equipment;

6) the calculating of the sum of all debits and credits;

7) the checking of the main equation of the bookkeeping;

8) the transferring of the sums into the capital account;

9) the preparation of the trial balance sheet.

Ex.7. Check yourselves. If you can answer all these questions you are ready to speak on the exam topic “Book-keeping and Accounting”.

1. What do accounting and book-keeping mean in general?

2. What is book-keeping considered to be?

3. How does book-keeping provide the basic accounting data?

4. What is the primary function of accounting?

5. What do the various financial statements produced by accountants provide managers and other interested parties with?

6. What kind of cycle is modern accounting system considered to be?

7. What steps fall under the book-keeping function?

8. What are they?

9. What is record keeping of companies based on?

10. What does drawing up of a trial balance include?

11. What does a book-keeper do with the information, having prepared the trial balance?

12. Who carries out the last four steps of accounting cycle?

13. What are they?

14. What should the accountant consider, calculating adjustments?

15. What does an accountant do on the second step?

16. What is the main purpose of the third step?

17. Can you describe the final step of an accounting cycle?

Ex.8. Get ready to speak on the following issues.

1. Tell the general difference between book-keeping and accounting.

2. Describe the first three steps of accounting cycle.

3. Describe the last four steps of accounting cycle.