Text 4. Bookkeeping as Part of Accounting Cycle

For management of any company to be efficient, extensive and accurate information concerning receipts and payments, assets and liabilities, depre­ciation of assets and other data about company status are required. Such in­formation being obtained mainly from different records, additional funds and time should be invested in bookkeeping and accounting system.   

In general, accounting and bookkeeping mean identifying, measuring, recording economic information about any business, bookkeeping being con­sidered the preliminary stage and part of the larger field of accounting.

The task of a bookkeeper is to ensure the record-keeping aspect of ac­counting and therefore to provide the data to which accounting principles are applied in the preparation of financial statements. Bookkeeping provides the basic accounting data by systematical recording such day-to-day financial information as income from the sale of products or services, expenses of busi­ness operations such as the cost of the goods sold and overhead expenses such as a rent, wages, salaries.

Accounting principles determine which financial events and transactions should be recorded in the bookkeeper'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 bookkeeping function, such as: 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. To make a complete bookkeeping record of every transaction in a journal, one should consider interrelated aspects of every transaction, and entries must be made in different accounts to keep the ins (receipts) and outs (payments) balanced.

A typical account is known to have two sides: the items on the left side are called debits, while the items on the right side are credits.

Thus, double-entry bookkeeping doesn't mean that the same transaction is entered twice, it means that the same amount of money is always debited to one account and credited to another account, each record having its own effect on the whole financial structure of the company. Certain accounts are increased with debits and decreased with credits, while other accounts are increased with credits and decreased with debits.

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 known as the drawing up of a trial balance and those that follow it usually take place at the end of the fiscal year. By making a trial balance, the record-keeping accuracy can be checked. The trial balance having been successfully prepared, the bookkeeping portion of the accounting cycle is completed.

The double-entry system of bookkeeping enables every company to deter­mine at any time the value of each item that is owned, how much of this value belongs to creditors, the total profit and how much belongs to the business clear of debt. Thus, one advantage of the double-entry system is that its information is complete enough to be used as the basis for making business decisions. Another advantage is that errors are readily detected, since the system is based on equations that must always be in balance.

Exercise 25. Find in the text the noun-derivatives corresponding to the following verbs and adjectives: to balance, to pay, to decide, to invest, to post, to record, to prepare, to receive, profitable, to interpret, accurate, to manage, to equal, to determine, to analyze, to inform, to disagree, valuable.

 

Exercise 26 . Form word-combinations with the nouns which are frequently used in the text “Bookkeeping as Part of Accounting Cycle” and adjectives which are given below. Translate them into Ukrainian.

Trial, primary, basic, accurate, additional, general, useful, preliminary, total, double, financial.

 

Exercise 27 . Choose the appropriate word from the variants given in brackets.

A bookkeeper deals with taxes, cash flow which includes cash (receipts / credits) and (debits / payments), sales, purchases and different other business (activities / transactions). 2. 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). 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. Bookkeepers first (post / record) all the data in the books which are called (ledgers / journals). 5.A ledger is a book having one page for each (entry / accounts) in the organization’s financial structure, (debits / credits) being shown on the left side. 6. Disagreements between the total of the (debits / receipts) and total of the (payments / credits) in the trial balance means that there is an error in the records. 7. All items of tangible assets should be (posted / listed) accurately before calculating their depreciation. 8. If sources exceed uses, there will be (a balance / an excess) of cash representing funds provided but not yet to use in the business.

Exercise 28. Match each sentence part on the left with its appropriate part on the right.

1. Bookkeeping as part of the accounting cycle deals with	a) is shown on the left-hand side of a list of accounts.
2. A bookkeeper is sure to be fully responsible for	b) each sale or purchase is shown as having an effect on both the debit and the credit columns of an account.
3. The preparation of a trial balance includes	c) recording in an account a sum of money paid out or still owed.
4. A special book known as a journal is used	d) regular transferring entries from the journal to the appropriate accounts in the ledger.
5. Double-entry bookkeeping is a system of recording accounts where	e) for recording all primary (первичный) information about any business transaction.
6. The posting procedure consists of	f) the accurate performance of the first three steps in the accounting cycle.
7. In bookkeeping a sum of money paid or owed by a business	g) is recorded on the right-hand side of a list of accounts.
8. One should know that crediting means	h) recording all money received by and paid out of a company in special books or computer files.
9. Unlike crediting the debiting procedure means	i) the checking of accounts by comparing the total credits with the total debits.
10. The sum of money gained by a business	j) recording the payment of a sum of money into an account.

Exercise 29. Complete the following sentences with appropriate prepositions of (9), on (2), in (7), by (1), below (2), where it is necessary.

The simplest set … double entry books consists … a journal and ledger. When a transaction occurs, it is not entered directly … the account, but it is first recorded … a book … original entries known as a journal.

Several kinds … journals are used … a bookkeeper, the general journal being the most common type (повторні) transactions special journals such as sales, purchases, cash-receipts and cash disbursements (виплат) journals are widely used … bookkeeping. Transactions that cannot be registered … a special journal and all entries that cannot affect … cash are recorded … a general journal.

In a general journal the title … the account to be debited is placed … the top line, with its amount shown … the debit column. The title … the account that is to be credited is shown … it, with its amount placed … the credited column. … this may be a written explanation … the transaction. The total … the debits column should always equal the total … the credits column … each general journal page.

 

Exercise 30. Answer the questions on text 4.

1. What kind of information is of great importance for proper company management? 2. What role does bookkeeping play in the accounting cycle? 3. What kind of data is collected by a bookkeeper?  4. What is the difference between bookkeeping and accounting? 5. Who is interested in obtaining accurate accounting information? 6. What is the modern concept of the accounting system? 7. What tasks should a bookkeeper solve at the first three steps of the accounting cycle?           8. What does double-entry bookkeeping mean? 9. What data are recorded in the company's general ledger? 10. When is the bookkeeping cycle considered to be completed? 11. What are the advantages of the double-entry system?

 

Exercise 31. Read the text, divide it into the paragraphs and give the title to each of them. Answer the questions after the text 5.

Text 5. Accounting Steps

Each time an item is purchased or sold, a bookkeeper performs the first three steps of the cycle and 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 (закрити рахунки). The most common reasons the accoun­tant should consider preparing adjustments are 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); depreciation of the assets; changes in the inventory, etc. As to inventory, it involves the physical measurement, counting and evaluation of items for sale. Inventory evaluation is subject to a variety of accounting methods, since many inventory items cannot be specifically calculated. The grain in a grain elevator, for example, comes from different sources and may have been bought at several prices. An accountant must choose between one of several methods for valuing the grain; each will provide a slightly dif­ferent value figure. On the fifth 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 balances in the accounts are the data that make up the organization's financial statements as a balance sheet and an income statement. The preparation of these statements is con­sidered to be the main purpose of the sixth step. The final step comprises a series of bookkeeping debits and credits to transfer sums from income state­ment    accounts into owners' equity accounts, and thus into capital. Such trans­fers reduce to zero the balances of all accounts, therefore the accounting books will be ready for the next accounting period.

 

1. Why is it necessary to make adjustments in a balance sheet? 2. What does the term “inventory” mean for an accountant? 3. Is the balance sheet considered to be the final important financial document of the company? 4. What account does closing entries affect?

 

Exercise 32. Finish the sentences using the information from the texts “Bookkeeping as a Part of Accounting Cycle” and “Accounting Steps”.

1. A bookkeeper performs the first three steps of a seven-step cycle, such as … .

2. An accountant carries out the last four steps, such as… .

3. The most common reasons, the accountant should consider preparing adjustments, are… .

4. When adjustments are calculated the accountant prepares ….

5. The balances in the accounts are ….

6. The final step comprises … .

 

Exercise 33. Learn the meanings of the word balance and word combinations with it.

balance	– баланс, сальдо, залишок
balance	– підраховувати, підсумовувати; зводити, закривати (рахунки)
trial balance	– пробний, попередній бухгалтерський баланс, частковий бухгалтерський баланс
draw up a balance	– зводити (підбивати) баланс
bring accounts to a balance	– складати зведений баланс
favourable balance	– активний баланс, позитивний баланс
unfavourable balance	– пасивний баланс, негативний баланс
cash balance	– касова готівка
balance of account	– залишок рахунку
balances with foreign banks	– залишки на рахунках в закордонних балансах
balance in hand	– грошова готівка, готівка каси
balance of payments	– платіжний баланс (звітність, яка характеризує участь країни в міжнародному обміні, що включає в себе поточний платіжний баланс і баланс руху капіталів)
balance of payments deficit	– дефіцит платіжного балансу
balance of trade	– торговий баланс (звітність, яка відображає результати участі країни в міжнародній торгівлі і яка, будучи складовою частиною платіжного балансу, входить також і в поточний рахунок)
debit balance	– дебетове сальдо, дебетовий баланс; позитивне сальдо
credit balance	– - кредитове сальдо, кредитний баланс; негативне сальдо

 

Exercise 34. Translate the Ukrainian words in brackets into English equivalents paying attention to the meaning of the word balance and its word combinations.

1. At the end of the fiscal year the company bank statement showed (залишок в $15,000). 2. A team of accountants is working now at ( складанням зведеного балансу компанії ). 3. After financial crises the government has to take special decisions to achieve ( збалансованої економіки ). 4. The country (має дефіцит торгового балансу з 1982 року). 5. The bank carefully examined (балансовий звіт фірми) before ap­proving of the loan. 6. In international economics, ( платіжний баланс ) showing the net in­flow of money to the country is considered to be a statistical account. 7. At the end of the year or even monthly a bookkeeper ( повинен скласти попередній баланс ). 8. The main function of the central bank (полягає в тому, щоб підраховувати кожний день) the sums received against the sums need­ed (ніколи не дозволяючи залишкам накопичуватися). 9 As every transaction is listed once as a debit and once as a credit, so (сума дебетового сальдо повинна дорівнювати сумі кредитового сальдо).

                                                         

Exercise 35. Put the verbs in brackets into the correct form.

At the end of the month or more frequently all journal entries (to post) into the book of accounts (to know) as a general ledger (to consist) of separate pages for each account. The page for each account (to show) its debits and its credits, so that the balance of each account (can) (to determine). As each jour­nal entry (to record) on the (to plan) side of its account, a mark (to place) in the post column of the journal in order (to show) that it already (to record) in the ledger. The date (to use) in the ledger (to be) the date on which the entry first (to record) in the journal. The post column in the account (to use) (to show) which page this entry (to post) to in the ledger.

In addition to the general ledger, a subsidiary (додатковий) ledger (to use) in order (to provide) information in greater detail about the accounts in the general ledger. For example, the subsidiary ledger (may) (to keep) for the amount of money (to owe) to the company by all its customers, for the wages (to pay) to each employee, for each building or machine (to own) by the company and for amounts (to owe) to each of the company's creditors.

 

Exercise 36. Learn the following words and word combinations.

tax and regulatory departments	– відділи з оподаткування і регулювання діяльності компанії
operating activities	– управлінська діяльність
financial performance	– фінансова діяльність
financial accounting	– фінансова звітність
managerial / management accounting	– управлінська звітність
budgeting	– складання / створення кошторису, фінансове планування, складання бюджету
capital budgeting	– створення кошторису капіталовкладень, розрахунок рентабельності капіталовкладень
deal in	– торгувати
deal with	– мати справу з (чимось)
financial statement	– тут: фінансовий звіт
statement of cash flows	– звіт про рух грошових потоків
income statement	– звіт про доходи
statement of retained earnings	– звіт про нерозподілений прибуток
inflow cash	– приплив / надходження коштів
outflow cash	– відплив коштів
inflow of assets	– приплив активів
outflow of assets	– відплив активів
source	– джерело
reliable source of information	– надійне джерело інформації
generate	– виробляти. створювати
disclose	– розкривати; показувати
disclosure	– розкриття, повідомлення
net loss	– чистий збиток
render	– віддавати, платити
render a service	– надавати послугу
render an account for payment	– надавати (подавати) звіт для оплати
withdrawal	– відклик; вилучення; анулювання; зняття з рахунку

 

Exercise 37. Read, translate and give the gist of text 6.

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