Concept explainers
The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year, or within completion of the operating cycle, is referred to as current ratio. This ratio assesses the liquidity of a company.
Formula of current ratio:
Accounts receivable turnover:
Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In other words, it indicates the number of times the average amount of net accounts receivables collected during a particular period.
Formula of current ratio:
Average collection period:
Average collection period indicates the number of days taken by a business, to collect its outstanding amount of accounts receivable on an average.
Formula of average collection period:
To indicate: whether each transaction will increase (I), decrease (D), or have no effect (NE) for the given ratios.
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FINANCIAL ACCOUNTING:TOOLS FOR BUSINESS
- Please briefly describe an income statement, statement of cash flows, and balance sheet. Please describe a hypothetical pro forma income statement. Please describe the five types of financial ratio analyses. Please provide and briefly discuss 1 ratio from each of the five types of analysis. Apply these same ratios to the financial statements of a firm of your choice, except those that we formerly addressed in any way in the course.arrow_forwardThe following transactions occurred during a recent year: a. Paid wages of $1,450 for the current period (example). b. Borrowed $7,250 cash from local bank using a short-term note. c. Purchased $2,900 of equipment on credit. d. Earned $580 of sales revenue; collected cash. e. Received $1,160 of utilities services, on credit. f. Earned $2,450 of service revenue, on credit. g. Paid $435 cash on account to a supplier. h. Incurred $100 of travel expenses; paid cash. i. Earned $580 of service revenue; collected half in cash, with balance on credit. j. Collected $160 cash from customers on account. k. Incurred $420 of advertising costs; paid half in cash, with balance on credit. Required: 1. For each of the transactions, complete the following table, indicating the account, amount, and direction of the effect (+ for increase and - for decrease) of each transaction under the accrual basis. Include revenues and expenses as subcategories of stockholders' equity, as shown for the first…arrow_forwardanalyze a campany's liquidity and solvency by using simple financial ratios. here you will answer questions relayed to saturn sales comapny ltd. analyze the both financial statements and answer the following question.arrow_forward
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- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College