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TEST 1
MBAM 207 FINANCE PROGRAMME
A. Read the text and do the tasks:
1. Complete the text with the phrases and words suggested below:
liability,
on,
to work for,
dealing with,
is made,
reduces,
track accounts,
needs ,
fraud,
located,
keep a record,
pay off,
a two-column ledger,
by,
of
2. What are the advantages of double-entry bookkeeping? You can answer the question
based on the information in the text and your own knowledge and experience.
When you start a small business, one of your first financial decisions has to be whether you are
going to use single or double-entry bookkeeping. You may not be a financial professional and
you may not be looking forward to 1………………….. the accounting side of the business.
However, businesses have to keep a detailed accounting of their financial transactions. This
process is known. The survival of the business depends 2………………… the owner’s ability to
establish good accounting and bookkeeping practices.
Single-Entry Bookkeeping
Single-entry bookkeeping is probably only going 3…………………. you if your business is very
small, simple, and with a low volume of activity. It is actually similar to keeping your own
personal checkbook. You 4………………… of transactions like cash, tax-deductible expenses,
and taxable income when you use single-entry bookkeeping.
Single-entry bookkeeping is characterized by the fact that only one entry 5……………….. for
each transaction, just like in your check register. In one column, entries are recorded as a positive
or negative amount. In single-entry bookkeeping, you can actually keep 6…………………, one
column for revenue and one for expenses. It’s still considered single-entry because there is just
one line for each transaction.
This type of bookkeeping is not for large, complex companies. It does not 7…………………….
like inventory, accounts payable, and accounts receivable. You can use single-entry bookkeeping
to calculate net income, but you can’t use it to develop a balance sheet and track the asset and
liability accounts. Transactions are a single entry, rather than a debit and credit made to a set of
books like in double-entry bookkeeping.
Double-Entry Bookkeeping
Most businesses, even most small businesses, use double-entry bookkeeping for their accounting
8………………... Two characteristics of double-entry bookkeeping are that each account has two
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columns and that each transaction is 9……………….. in two accounts. Two entries are made for
each transaction – a debit in one account and a credit in another account.
An example of a double-entry transaction would be if the company wants to 10……………. a
creditor. The cash account would be reduced 11……………………….. the amount the company
owes the creditor. That would be the debit. Then, the double entry 12……………………… the
amount the business now owes to the creditor account as it has received the amount of the credit
the business is extending. That is the credit.
If you want to keep track of asset and 13……………….. accounts, you want to use double-entry
bookkeeping instead 14…………………. single-entry. Other advantages that double-entry
bookkeeping has over single-entry bookkeeping are that the owner can accurately calculate profit
and loss in complex organizations, financial statements can be prepared directly from the books,
and errors or 15………………….. are easy to detect.
B. Complete the text using the words in the box:
bankruptcy corporations creditors
issue
losses
financial
sole trader
shares
prospectus files
partnership
premises
registered
capital
liability
TYPES OF BUSINESS
The simplest form of business is the individual proprietorship or ( 1) ...........: for
example, a shop (US = store) or a taxi owned by a single person. If several
individuals wish to go into business together they can form a (2) ...........;
partners generally contribute equal capital, have equal authority in management, and
share profits or (3) . . . . . . . . . . . . In many countries, lawyers, doctors and
accountants are not allowed to form companies, but only partnerships
with unlimited (4) ........... for debts - which should make them act
responsibly.
But a partnership is not a legal entity separate from its owners; like sole traders,
partners have unlimited liability: in the case of (5) ..........., a partner with a
personal fortune can lose it all. Consequently, the majority of businesses are limited
companies (US = (6) ...........), in which investors are only liable for the
amount of capital they have invested. If a limited company goes bankrupt, its
assets are sold (liquidated) to pay the debts; if the assets do not cover the debts,
they remain unpaid (i.e. (7) ........... do not get their money back.)
In Britain, most smaller enterprises are private limited companies which
cannot offer (8) ........... to the public; their owners can only raise capital from
friends or from banks and other venture capital institutions. A successful, growing
British business can apply to the Stock Exchange to become a public limited
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company; if accepted, it can publish a (9) ........... and offer its shares for sale on
the open stock market. In America, there is no legal distinction between private
and public limited corporations, but the equivalent of a public limited company is
one (10) ........... by the Securities and Exchange Commission.
C. Match these accounting terms with the definitions below:
current assets, fixed assets, intangible assets, liquid assets, net assets
1. ......................are anything that can quickly be turned into cash.
2. ......................are those which will be consumed or turned into cash in the ordinary course
of business.
3. .................... are those whose value can only be quantified or turned into cash with
difficulty, such as goodwill, patents, copyrights and trademarks.
4. ......................... , or shareholders' equity, on a business’s balance sheet, is assets minus
liabilities (which is generally equal to fixed assets plus the difference between current
assets and current liabilities).
5. ...................... , such as land, buildings and machines, cannot be sold or turned into cash,
as they are required for making and selling the firm's products.
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