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Is accounting in your country based on standards, rules, laws, or a mixture of these? What accounting system do international companies in your country use?



A.Double-entry bookkeeping

ZaheerYounis works in the accounting department of a trading company:

‘I began my career as a bookkeeper. Bookkeepers record the company’s daily transactions: sales, purchases, debts, expenses, and so on. Each type of transaction is recorded in a separate account - the cash account, the liabilities account, and so on. Double-entry bookkeeping is a system that records two aspects of every transaction. Every transaction is both a debit - a deduction - in one account and a corresponding credit - an addition - in another. For example, if a company buys some raw materials - the substances and components used to make products - that it will pay for a month later, it debits its purchases account and credits the supplier’s account. If the company sells an item on credit, it credits the sales account, and debits the customer’s account. As this means the level of the company’s stock - goods ready for sale - is reduced, it debits the stock account. There is a corresponding increase in its debtors - customers who owe money for goods or services purchased - and the debtors or accounts payable account is credited. Each account records debits on the left and credits on the right. If the bookkeepers do their work correctly, the total debits always equal the total credits.’


BrE: debtors; AmE: accounts receivable BrE: creditors; AmE: accounts payable BrE: stock; AmE: inventory


B. Day books and ledgers

‘For accounts with a large number of transactions, like purchases and sales, companies often record the transactions in day books or journals, and then put a daily or weekly summary in the main double-entry records.

In Britain, they call the main books of account nominal ledgers. Creditors - suppliers to whom the company owes money for purchases made on credit - are recorded in a bought ledger. They still use these names, even though these days all the information is on a computer.’

Note: In Britain the terms debtors and creditors can refer to people or companies that owe or are owed money, or to the sums of money in an account or balance sheet.


C. Balancing the books

‘At the end of an accounting period, for example a year, bookkeepers prepare a trial balance which transfers the debit and credit balances of different accounts onto one page.

As always, the total debits should equal the total credits. The accountants can then use these balances to prepare the organization’s financial statements.’


Ex.2.1. Match the words in the box with the definitions below. Look at texts A and B to help you.


credit ledger debit creditors stock debtors


1 an amount entered on the left-hand side of an account, recording money paid out

2 a book of accounts

3 customers who owe money for goods or services not yet paid for

4 an amount entered on the right-hand side of an account, recording a payment received

5 goods stored ready for sale

6 suppliers who are owed money for purchases not yet paid for


Ex.2.2.Complete the sentences. Look at texts A, В and С to help you.

1 ……… …….. shows where money comes from and where it goes: it is always transferred from one ……. to another one. Every event is entered twice - once as a credit and once as a ……… .

2 Most businesses record very frequent or numerous transactions in ……….. ……….. or ……….. .

3 The main account books are called ………. ………, and the book relating to creditors is called the ……… ……… .

4 In order to prepare financial statements, companies do a ……… ……… which copies all the debit and credit balances of different accounts onto a single page.


Ex.2.3.Complete the sentences using ‘debit’ or ‘credit’. Look at text A to help you.

1 If you buy new assets, you ………. the cash or capital account.

2 If you pay some bills, you ………. the liabilities account.

3 If you buy materials from a supplier on 60 days’ credit, you ………. the purchases account and the supplier’s account.

4 If you sell something to a customer who will pay 30 days later, you ……… the sales account and the customer’s account.


Over to you

What qualities does a good bookkeeper need? Would you like to work as a bookkeeper? If not, which type of accounting do you think is the most interesting, and why?



A. Internal auditing

After bookkeepers complete their accounts, and accountants prepare their financial statements, these are checked by internal auditors. An internal audit is an examination of a company’s accounts by its own internal auditors or controllers. They evaluate the accuracy or correctness of the accounts, and check for errors. They make sure that the accounts comply with, or follow, established policies, procedures, standards, laws and regulations. (See Units 7 and 8) The internal auditors also check the company’s systems of control, related to recording transactions, valuing assets and so on. They check to see that these are adequate or sufficient and, if necessary, recommend changes to existing policies and procedures.

B External auditing

Public companies have to submit their financial statements to external auditors - independent auditors who do not work for the company. The auditors have to give an opinion about whether the financial statements represent a true and fair view of the company’s financial situation and results.

During the audit, the external auditors examine the company’s systems of internal control, to see whether transactions have been recorded correctly. They check whether the assets mentioned on the balance sheet actually exist, and whether their valuation is correct. For example, they usually check that some of the debtors recorded on the balance sheet are genuine. They also check the annual stock take - the count of all the goods held ready for sale. They always look for any unusual items in the company’s account books or statements.

Until recently, the big auditing firms also offered consulting services to the companies whose accounts they audited, giving them advice about business planning, strategy and restructuring. But after a number of big financial scandals, most accounting firms separated their auditing and consulting divisions, because an auditor who is also getting paid to advise a client is no longer totally independent.


BrE: stock take; AmE: count of the inventory

Ex.3.1. Match the job titles (1-4) with the descriptions. Look at texts A and B to help you.

1 bookkeepers a company employees who check the financial statements

2 accountants b expert accountants working for independent firms who review

companies’ financial statements and accounting records

3 internal auditors c people who prepare financial statements

4 external auditors d people who prepare a company’s day-to-day accounts


Ex.3.2.Match the nouns in the box with the verbs below to make word combinations. Some words can be used twice. Look at texts A and В to help you.


accounts procedures opinions systems of control regulations policies stock take advice laws


1. check 3. examine

2. comply with 4. give


Over to you

Would you like to work as an external auditor? Do you think they get a very friendly welcome at the companies whose accounts they audit? If not, why not?



A. Assets, liabilities and capital

Balance Sheet, 31 December 20 ($'000)   Current assets 3,500 Liabilities 6,000 Fixed assets 6,500 Shareholders' equity 4,000   Total assets 10,000 Total liabilities and Shareholders ‘equity 10,000


Company law in Britain, and the Securities and Exchange Commission in the US, require companies to publish annual balance sheets: statements for shareholders and creditors. The balance sheet is a document which has two halves. The totals of both halves are always the same, so they balance. One half shows a business’s assets, which are things owned by the company, such as factories and machines that will bring future economic benefits. The other half shows the company’s liabilities, and its capital or shareholders’ equity (see below). Liabilities are obligations to pay other organizations or people: money that the company owes, or will owe at a future date. These often include loans, taxes that will soon have to be paid, future pension payments to employees, and bills from suppliers: companies which provide raw materials or parts. If the suppliers have given the buyer a period of time before they have to pay for the goods, this is known as granting credit. Since assets are shown as debits (as the cash or capital account was debited to purchase them), and the total must correspond with the total sum of the credits - that is the liabilities and capital - assets equal liabilities plus capital (or A = L + C).

American and continental European companies usually put assets on the left and capital and liabilities on the right. In Britain, this was traditionally the other way round, but now most British companies use a vertical format, with assets at the top, and liabilities and capital below.


BrE: balance sheet; AmE: balance sheet or statement of financial position BrE: shareholders' equity; AmE: stockholders' equity


B. Shareholders' equity

Shareholders’ equity consists of all the money belonging to shareholders. Part of this is share capital - the money the company raised by selling its shares. But shareholders’ equity also includes retained earnings: profits from previous years that have not been distributed - paid out to shareholders - as dividends. Shareholders’ equity is the same as the company’s net assets, or assets minus liabilities.

A balance sheet does not show how much money a company has spent or received during a year. This information is given in other financial statements: the profit and loss account and the cash flow statement.


Ex.4.1.Are the following statements true or false? Find reasons for your answers in texts A and В.

1. British and American balance sheets show the same information, but arranged differently.

2. The revenue of the company in the past year is shown on the balance sheet.

3. The two sides or halves of a balance sheet always have the same total.

4. The balance sheet gives information on how much money the company has received from sales of shares.

5. The assets total is always the same as the liabilities total.

6. The balance sheet tells you how much money the company owes.


Ex.4.2.Complete the sentences. Look at texts A and В to help you.

1. ………. are companies that provide other companies with materials, components, etc.

2. ………. are profits that the company has not distributed to shareholders.

3. ………. are things a company owns and uses in its business.

4. ………. consist of everything a company owes.

5. ………. consists of money belonging to a company’s owners.


Ex.4.3.Make word combinations using a word from each box. Then use the word combinations to complete the sentences below. Look at texts A and В to help you.

distribute grant owe pay retain     liabilities money profits earnings credit


1. We ………… a lot of our ………. because we don’t ………… any of our ………. to the shareholders.

2. Most businesses have customers who………. ……….., because they ……….. them 30 or 60 days’ ………. .

3. We have a lot of ……….. that we’ll have to ………… later this year.


Over to you

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