Text 7 the double entry system – the basic method of accounting

Exercise 7. 1

Study the vocabulary:

1	suffice it to say	1	достатньо сказати
2	a merchant	2	купець
3	prolific	3	плідний, рясний
4	to penetrate	4	проникати, охоплювати
5	to survive	5	вижити, уціліти
6	to abolish confusion	6	знищити (відмінити) плутанину
7	chaos	7	хаос, повний безпорядок
8	sophisticated	8	витончений, складний
9	to acquire	9	отримати, набути
10	significance	10	значення, важливість, значимість

Exercise 7. 2

Read and translate the text:

About 3,000 B.C., the Sumerians, the Egyptians, and other peo­ples of the Middle East developed the first known business records. The results of tax collections, farming harvests, and the transactions of mer­chants were recorded by means of written numbers. The Romans, too, were prolific keepers of records. Indeed, Roman numerals were used in many parts of Europe until the fifteenth century A.D. The stimulus for modern bookkeeping came with the introduction of Arabic, or Hindu-Arabic, numerals and the decimal system in the twelfth century A.D. Most people today use Arabic numerals.

The two basic systems of bookkeeping are double-entry and single-entry. The double-entry system, the backbone of accounting, evolved during the Renaissance. The first systematic presentation of double-entry book-keeping appeared in 1494, two years after Columbus discovered America. It was described in a mathematics book written by Luca Paciolli, a Fransiscan monk who was a friend of Leonardo da Vinci. Goethe, the famous German poet and dramatist, referred to double-entry book-keeping as «one of the finest discoveries of the human intellect». And, indeed, the importance of the double-entry system is difficult to appreciate. Suffice it to say that the double-entry technique made accounting records more comprehensive and orderly. Before the invention of double-entry book-keeping accounting records had been disorganised. Merchants literally had not known the state of their finances. The use of this technique had a positive effect on both business and trade. Some scholars think that there was a close relationship between the adoption of the double-entry system and economic growth in many countries. In the Middle Ages the knowledge of this technique was a pre-condition of rapid economic growth of most European countries. And the other way round, where this technique was lacking or slows to penetrate, economic development was delayed.

In Britain the first book on the double-entry system was written by one Hugh Old-Castle schoolmaster, who taught arithmetic. No copy of this first book has survived. Later some more books describing this new method were published. English businessmen began to employ this recording device. The primary advantage of double-entry accounting, to many historians of accounting, was that it abolished confusion in the accounts by creating order out of chaos.

In Russia double-entry accounting was introduced to the state administration under Peter I. It was first applied for the Admiralty and the army. Peter I required the managers of all the mining and smelting works to maintain records of their operations, thus providing a basis for the collection of national statistics. The first large enterprise to use double-entry was the Demidovs. It had over 50 works, mostly iron-making in the Urals. By the end of the 18th century the Demidov enterprise had acquired sophisticated accounting techniques.

What is the significance of the double-entry system for accounting? The double-entry system is based on the principle of duality, which means that all economic events have two aspects — effort and reward, sources and uses — that offset or balance each other. In the double-entry system each transaction must be recorded with at least one debit and one credit, in such a way that the total amount of debits and the total amount of credits equal each other. Because of the way it is designed, the system as a whole is always in balance.

Exercise 7.3

Read the first and second paragraphs of the text and choose the best variant:

About 3,000 B.C., the Sumerians, the Egyptians, and other peo­ples of the Middle East developed the first known business records. The results of tax collections, farming harvests, and the transactions of mer­chants were recorded by means of written numbers. The Romans, too, were prolific keepers of records. Indeed, Roman numerals were used in many parts of Europe until the fifteenth century A.D. The stimulus for modern bookkeeping came with the introduction of Arabic, or Hindu-Arabic, numerals and the decimal system in the twelfth century A.D. Most people today use Arabic numerals.

The two basic systems of bookkeeping are double-entry and single-entry. The double-entry system, the backbone of accounting, evolved during the Renaissance. The first systematic presentation of double-entry book-keeping appeared in 1494, two years after Columbus discovered America. It was described in a mathematics book written by Luca Paciolli, a Fransiscan monk who was a friend of Leonardo da Vinci. Goethe, the famous German poet and dramatist, referred to double-entry book-keeping as «one of the finest discoveries of the human intellect». And, indeed, the importance of the double-entry system is difficult to appreciate. Suffice it to say that the double-entry technique made accounting records more comprehensive and orderly. Before the invention of double-entry book-keeping accounting records had been disorganised. Merchants literally had not known the state of their finances. The use of this technique had a positive effect on both business and trade. Some scholars think that there was a close relationship between the adoption of the double-entry system and economic growth in many countries. In the Middle Ages the knowledge of this technique was a pre-condition of rapid economic growth of most European countries. And the other way round, where this technique was lacking or slow to penetrate, economic development was delayed.

1. The first business records were made by ...

4. the peoples of the Middle East

5. the Europeans

6. the Romans

2. The double-entry system developed during ...

4. the twelfth century A.D

5. the Renaissance

6. the fifteenth century A.D

3. The first systematic presentation of double-entry book-keeping was described in a mathematics book written by ...

4. Goethe

5. Luca Paciolli

6. Leonardo da Vinci

4. The use of double-entry book-keeping had a positive effect on ...

4. business

5. industry

6. both business and finances

5. Some researchers think that ...

4. there wasn’t any relationship between the adoption of the double-entry system and economic growth in many countries

5. there was a close relationship between the adoption of the double-entry system and economic growth in many countries

6. there was some relationship between the implementation of the double-entry system and economic growth in many countries

Exercise 7.4

Read the third and fourth part of the text and fill in the gaps. Then read and translate:

enterprise; introduced; system; describing; confusion; accounting; providing; recording; arithmetic; required

In Britain the first book on the double-entry …1… was written by one Hugh Old-Castle schoolmaster, who taught …2…. No copy of this first book has survived. Later some more book…3… this new method were published. English businessmen began to employ this…4…device. The primary advantage of double-entry accounting, to many historians of accounting, was that it abolished…5…in the accounts by creating order out of chaos.

In Russia double-entry accounting was …6…to the state administration under Peter I. It was first applied for the Admiralty and the army. Peter I…7…the managers of all the mining and smelting works to maintain records of their operations, thus…8… a basis for the collection of national statistics. The first large…9…to use double-entry was the Demidovs. It had over 50 works, mostly iron-making in the Urals. By the end of the 18th century the Demidov enterprise had acquired sophisticated…10…techniques.

Exercise 7.5

Read the whole text again and choose the best answer:

1. By whom and when were the first business records developed?

a) by the Romans in 1494

b) by the Sumerians, the Egyptians, and other peo­ples of the Middle East in about 3,000 B.C.

c) by the European peoples in the fifteenth century A.D.

2. When did the double-entry system evolved?

a) during the Roman Empire

b) in the eleventh century A.D.

c) during the Renaissance

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3. Who named double-entry book-keeping as «one of the finest discoveries of the human intellect»?

a) Goethe

b) Luca Paciolli

c) Leonardo da Vinci

4. Who wrote the first book on the double-entry system?

a) a schoolmaster

b) a merchant

c) a sailor

5. Who introduced double-entry accounting in Russia?

a) Columbus

b) the Demidovs

c) Peter I