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.’

Partnerships

A partnership is a business arrangement in which several people work together, and share the risks and profits. In Britain and the US, partnerships do not have limited liability for debts, so the partners are fully liable or responsible for any debts the business has. Furthermore, partnerships are not legal entities, so in case of a legal action, it is the individual partners and not the partnership that is taken to court. In most continental European countries there are various kinds of partnership which are legal entities.

A sole trader business - an enterprise owned and operated by a single person - also has unlimited liability for debts.

Text 6

Banking

The English commercial banks have branches in all the major towns and a similar structure and mode of working is common to them all. The owners are the shareholders. At the outset they provide the necessary capital. They are all organized on the joint stock principle and are registered pub­lic companies. The Chairman and Board of Directors are elected by the ordinary shareholders at the Annual General Meeting and are responsible for the efficient management of the bank. The Board is concerned with the overall policy of the bank and the major decisions which put that policy into effect. The Board will appoint a Managing Director who is directly responsible to them and a member of the Board. They will also appoint the most senior executives who in turn appoint the rest of the clerical staff who will be responsible in differ­ent capacities for the day to day running of the bank. The essence of a bank's activities is the collection of depos­its through current accounts and deposit accounts and the use of these funds to provide loans or funds for investment. The current account is the one commonly held and is drawn upon by cheques and standing orders. The deposit account is more in the nature of a savings account. The pattern of in­vestments which a bank decides upon is crucial because, on the one hand, the bank must use the funds wisely to make a profit and, on the other, funds must be available for deposi­tors to withdraw when they wish to do so. At the end of each business year the Directors recommend and the Annual General Meeting decides how much of the profit should be distributed to the shareholders as dividend, and how much should be retained in the business. In prepara­tion for the Annual General Meeting, a bank publishes its Report and Accounts. These must be sent to every share holder and are also available for anyone with an interest in the affairs of the bank. From the published accounts share­holders can easily determine the total profits the bank has earned and how much is available for distribution.

Text 7