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. A new firm of auditors has now been appointed.

They check the highlights, making up the Profit Statement, the Balance Sheet, the Directors’ Report.

The Profit Statement (Trading & Profit & Loss Account) shows how the profit for the year is arrived at.

Net Sales of Income – cost of materials, work, overhead charges = trading surplus – depreciation on plant & buildings – auditors’ fee – administration & selling costs = 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) & the sources from which they derived.

The totals on the two sides of the Balance Sheet must agree. The total dividend to be paid for the year is a current liability.

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, & wholesale business is done on credit, given for 30 days. Any company prefer to receive long credit from its suppliers.

For each sale an invoice is sent to the customer. It’s the list of the goods delivered & amount owed. At the end of the month each customer is sent an account, showing the total amount due.

Sometimes debtors cannot repay a credit, for example, in case of bankrupt of the company or dishonesty the 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. There are special agencies, which provide information about the financial situation of any company, so the suppliers can judge a credit risk.

Cristopher Thorn came to the Account Department. William Buckherst, the chief accountant of the firm decided to try to get payment on one or two of long outstanding accounts. At that time H&G had several bad debts. Usually they only gave credit for 30 days. But Bush&Green had owed H&G 700 pounds for office furniture for over 9 months.H&G should not put a professional debt collector on because their was a risk of losing a customer. Before the conversation with Mr. Buck, Shut spoke with Mr. Martin, who said about his new area, new salary scheme. So their representatives had been paid a basic salary supplemented by a commission on sales. The new system would be a graded salary based on sales quotas. Shut said that he made inquiries about B&G in several shops near their old address. There was a cafe near that address. The chap of it hesitated a long time before said that they sent the letters back to the PO. Later Shut had a conversation with the owner of the bookshop. THEN HE NOTICED IN HIS OFFICE THEIR FILLING CABINETS and at once found out their serial number. Those filling cabinets were supplied to B&G. The bookshoper brought them from a firm called Windell and Riddel. Shut was sure that it was the same people operating under a different name. He went to the firm and presented a bill to them. They pretended they did not know anything about it. But their boss recognised Mr. Shut. He went at once to write out a cheque and asked to keep quiet about it. Buck said that it was their duty to inform the police about these case and they must take more care in the future.