The Accounting Function

The.........................function of the Chief Accountant is to ensure that.........................funds are available for such capital.........................on new plant and equipment as is required in the Corporate Plan. Adequate working capital will also be required to meet revenue expenditure such as.........................and salaries, purchases of raw materials and the inevitable administration expenses. Whenever ......................... or sales are made records will need to be kept. In many ways the accounts are like a.........................telling you what has happened since the business commenced. On 3rd April we purchased a new mainframe for ₤750,000. On 11th May we spent ₤15,000 on a new motor van, and so on. The data tells management what.........................are at their disposal and what commitments they have to be prepared to meet. By.........................the accounts managers can see how much cash is available, how much they owe to their.........................and how much they are owed by their.........................They must always be in a position to meet their commitments if.........................is to be avoided. The accounts make a contribution to the decision-making process. Once.........................have been identified, alternative.........................have to be considered and evaluated. The evaluation will very often be centred on.........................data provided by the accounting departments. If we chose Option A how much would it cost? What would be the net revenue (after.........................of the expenses)? How much would labour costs amount to? Would it be.........................to use more capital intensive methods of production? It is this type of question which can be.........................by the accountants.

When the decision is implemented there will be a need for feedback. Control.........................will be necessary to ensure that any deviations are speedily noticed so that.........................action can be taken. The ......................... flow of accounting information will be the means by which the deviations are spotted. The use of computers will make it.........................to improve the feedback both in terms of.........................and speed.

Section D. Adjectives and adverbs

Add an appropriate adjective, adverb or preposition from the lists below to each of the following sentences where indicated.

a) People who go into a business for the first time will …………. appreciate the help of a ……………… bank manager.

b) Funds will ………………. be required to purchase equipment.

c) Chief Accountants will not …………………… agree to spend money even though the equipment is regarded as ………………… .

d) Capital outlay will …………………… be called for to replace ……………… machinery.

e) Almost all business conducted ………………. firms is on a ……………… basis.

f) While payments can be deferred, others are due for payment ………………. .

g) Sometimes when a business expands it encounters cash flow problems.

h) ……………….. rates of tax make it …………….. difficult to succeed in business.

i) Income minus expenditure during a …………………… year equals profit.

Adjectives: credit, high, co-operative, obsolete, some, new, essential.

Adverbs: immediately, probably, invariably, always, between, often, increasingly.

Section E. Multiple choice

Choose the phrase (a, b, or c) which best completes each sentence, and tick the appropriate box.

1. When a trader buys goods on credit he does not have to

   1. pay for them immediately;

   2. pay for them until the end of the month;

   3. pay for them.

2. The purpose of keeping accounts is to

   1. see how much has been spent;

   2. find out why the business has lost money;

   3. determine whether the business has made a profit or a loss.

3. The tax authorities want to know how much profit a business has made

   1. during the financial year;

   2. in order to calculate any liability for tax;

   3. since the business was set up.

4. It is expensive for a manufacturer to carry a high level of stocks

   1. and the danger of pilfering is increased;

   2. but the danger of pilfering is decreased;

   3. but less storage space is required.

5. A manufacturer may hold stocks of finished goods with the purpose of

   1. reducing the expense of advertising;

   2. reducing the possibility of machine breakdowns;

   3. improving the delivery time to customers.

6. A firm is said to be insolvent when it

   1. cannot meet its commitments;

   2. is making losses;

   3. is making profits.

7. The credit rating given to a customer will depend upon

   1. his willingness to buy goods;

   2. the time he takes to pay for the goods;

   3. his reputation.

8. By giving customers two months to pay for the goods they buy the manufacturer is

   1. making it difficult for them;

   2. giving them time to sell the goods before they have to pay for them;

   3. making sure they pay for them.

9. A firm can encourage their customers to pay more promptly by

   1. increasing cash discounts;

   2. reducing cash discounts;

   3. eliminating cash discounts.

10. The people who owe money to the business are called

    1. creditors;

    2. debtors;

    3. suppliers.

Section F. Summarise

Give the following passage a title and summarise it in Russian in about 150 words.

Many businesses are owned and controlled by a single person (called a sole trader). There would not be much capital required and he would no doubt be given credit by his suppliers. This would give him the opportunity to sell goods to his customers before having to pay for them. He would no doubt turn to his bankers for temporary loans if, and when, these were required. If he wanted to increase the size of his business he would either turn to the bank for longer-term support or «plough back» some of his profits. The attraction for the sole trader is that he has maximum control over the business, making decisions without reference to others.

Other businesses are organised in the form of a partnership. Each partner provides a part of the capital, and the profits and losses are shared on an agreed basis. The amount of capital which can be raised is restricted by the personal wealth of the partners and is likely to be inadequate for the modern large-scale enterprises. Partnerships tend to remain relatively small, predominating in retailing and the professions. Solicitors' practices are often in the form of partnerships, one of the partners concentrating on conveyancing* (property sales), another on litigation* (lawsuits), while a third deals with probate* (wills and trusts).

The problem with partnerships is that all partners are liable for the debts of the firm, irrespective of the amount of capital they invested. So it would be possible for an extremely rich person to have a small stake in the enterprise, but to lose all his personal assets if the business fails.

A business which is drilling for oil or producing motor cars will obviously need extensive funding and they will be able to obtain money more easily from the public if they are in the form of a limited company. This is because if the company becomes insolvent the shareholders only stand to lose their original stake, the price they paid for their shares.

An enterprise requiring large amounts of capital would probably have its shares quoted on the stock exchange and this would give its shareholders the opportunity to dispose of their shares more easily, if they so wished.

Different classes of shares may be issued but, in general, the ordinary shareholders have voting rights which give them power to elect the board of directors who will organise and control the company's activities.

Section G. Meanings

First, read the passage below. Then, explain the meanings of the words and phrases which have been highlighted.

If you are considering setting up your own business, an accountant is the best person to give you financial advice. It is a legal requirement that proper financial records are kept and the basic principle is to record every single transaction.

One of the purposes is to ascertain whether you have made a profit or loss during a given period. Profit could be described as the difference between the value of the business at the start of a trading period and the value of the business at the end of that period.

Before deciding whether we have made a profit or loss we need to consider the extent to which our assets have depreciated. Our assets are those things we own which could be converted into cash, in contrast to our liabilities which are debts which we owe whether or not they are due immediately. Perhaps we bought a motor vehicle for £10,000 when the business started, but it is very unlikely that we would be able to sell if for anything like that figure. The general rule is that we estimate the life of the asset and if the life of the motor van is, say, five years, we then write down its value by 20% per annum so that by the end of the five years it is showing nil value in our books.

A deduction also has to be made for bad debts. This is a normal hazard in business, especially since so many transactions are for credit rather than cash. We have supplied goods to a particular customer who has now become bankrupt. He cannot pay the money he owes us and so the profit we thought we had made from the transaction has proved illusory.

Section H. Reply to a letter

You are working for an accountant, Peter Dolby, and in his absence you are required to answer the following letter. Mr Dolby is on holiday until a week on Monday.

63 The Boulevard

Bournemouth

Dorset BH5 6PH

(date)

Peter Dolby Esq.

Chartered Accountant

6 Poole Road Bournemouth

BH7 7HH

Dear Mr Dolby,

I have just started up in business as a restaurateur here in Bournemouth and I have been advised to seek the services of an accountant. Mr Dobbs of Shelley's Amusement Arcade has recommended your good self and I am wondering whether you would be prepared to look after my interests, of course assuming the fees are reasonable.

Apart from dealing with my accounts I am also considering the possibility of forming a limited company and would welcome your advice on this. My wife's family might be prepared to help with the finances. I think I should warn you that although I consider myself a first-class chef, I have no experience of keeping accounts.

Yours truly,

George Lazemby