Business Lesson 5: Bookkeeping and Financial Terms

Business LESSON 5
Bookkeeping and Financial Terms

TEXT 1: Payments, Arithmetic, & Expenses

Arthur landed his dream job. Stephen Miller & Sons Importing emailed him over the weekend and informed him that following his interview, they wanted to offer him a two-year contract as Assistant Director of Sales. After receiving his signing bonus, Arthur decided it was time to pay off some of his debt and distribute his money wisely.
 That afternoon, Arthur headed to his local branch to begin transferring his money.

B: Good morning sir, how may I help you this afternoon?


A: Good morning. I would like to deposit this cheque into my savings account. Afterwards I was hoping to make some payments to my credit line and credit card.


B: Not a problem sir. Please enter your pin here, and I will need a piece of identification.


A: Here you are. Can I transfer £500 to my credit line, £200 to my Barclay’s credit card, another £200 to my checking account, and the remainder can stay in my savings account?


B: All done sir, enjoy your afternoon!


A: You too, thank you.

Back at his flat, Arthur reads over his contract to see what his company considers deductible costs and/or reimbursable expenses. To his surprise, he can write off many of his day-to-day expenses.
For example: Stephen Miller & Sons Importing is responsible for reimbursing petrol if the employee commutes 45 miles to work or less. If the employee drives further, they will be provided with a company vehicle. Also, at the end of the first three months, any employee working within the sales sector receives a company credit card to be used for meals with potential clients and/or existing loyal customers. Until they receive this card, the employee may fill in an expense form in order to be reimbursed for the personal expenses he/she has compiled thus far.
It turns out that Arthur’s contract is even better than he expected. Now he has to make the calculations before he fills in an expense form.

Petrol:
 Average commute to work: 50 miles x 5 days per week. (Cost of fuel, £100) 
Amount covered by expenses: 45 miles x 5 days per week. (Cost covered, £90)

Personal Expenses:
 Restaurants & Bars: £250 (one month) cafés (£30) taxis & parking (£50) = total of £330


TOTAL REIMBURSEMENT: £420 (this month) (£90 + £330)

Text 2: Bookkeeping, Financial Statements & Finance Idioms

Arthur has finally settled into his job at Stephen Miller & Sons. The Board of Directors usually sends him emails with suggestions or recommendations. This week, the email said that he should hire a new accountant. The Human Resources Department interviewed a recent university graduate called Georgina Simpson. They suggested that Arthur hire her and train her on the basics of accounting in order to learn basic Bookkeeping and Financial Terms. One phone call later, Georgina was Stephen Miller & Son’s newest employee. Unfortunately, Georgina has a lot to learn, and very little time to learn it.

A: Okay Georgina, these are last year’s numbers for our branch in Manchester: Our net income was £247 338 and our gross income was £309 113.


G: Wow, that is such a big difference. Can I see some of the bookkeeping from last year so I can find out where all our money went?


A: Of course, here you are. These are the debit and credit account statements that correspond to all of the ins-and-outs of finances at our Manchester branch.

DEBIT: 
Total deposited: £450 000 (approximately).


Total withdrawn: £50 000 (approximately).


CREDIT: 
Credit limit: £100K.


Credit used: £25K (approximately).

A: Now, to understand our net income, here is a financial report written by our previous accountant. He has included all the operating costs, interest, and cash flow of the Manchester branch. Keep in mind that the branch’s management staff is paid by the Corporate Head Office and not the local branch. That explains why the employee pay may seem so low.

FINANCIAL REPORT:

MANCHESTER BRANCH, 2011


Operating costs: (all numbers approximate)


Employee pay: 65K


Delivery Fees: 5K


Company vehicles: 3.5K


Office supplies: 1.5K


TOTAL: 75K (50K debit withdrawals and 25K  credit).


Interest rates: (3 separate accounts)


Barclay’s Credit Line: 70K limit, interest = prime + 5.1%.


Barclay’s Corporate Credit Card: 20K limit, interest = prime + 18%.


HSBC Business Credit Card: 10K limit, interest = prime + 19.5%.

A: Also, The branch normally keeps exactly £5 000 on hand as their consistent cash flow.


G: Great, thanks Arthur. I understand financial statements more or less now and I feel that I know enough Bookkeeping and Financial Terms to get by.