A liquid asset can be converted to cash quickly without significantly impacting the asset’s value. Which of the following asset classes is generally considered to be the most liquid? Inventories Cash Accounts receivable The most recent data from the annual balance sheets of N&B Equipment Company and Jing Foodstuffs Corporation are as follows: Balance Sheet December 31st31st (Millions of dollars) Jing Foodstuffs Corporation N&B Equipment Company Jing Foodstuffs Corporation N&B Equipment Company Assets Liabilities Current assets Current liabilities Cash $574 $369 Accounts payable $0 $0 Accounts receivable 210 135 Accruals 127 0 Inventories 616 396 Notes payable 717 675 Total current assets $1,400 $900 Total current liabilities $844 $675 Net fixed assets Long-term bonds 1,031 825 Net plant and equipment 1,100 1,100 Total debt $1,875 $1,500 Common equity Common stock $406 $325 Retained earnings 219 175 Total common equity $625 $500 Total assets $2,500 $2,000 Total liabilities and equity $2,500 $2,000 N&B Equipment Company’s current ratio is _______ , and its quick ratio is ; Jing Foodstuffs Corporation’s current ratio is , and its quick ratio is . Note: Round your values to four decimal places. Which of the following statements are true? Check all that apply. Jing Foodstuffs Corporation has a better ability to meet its short-term liabilities than N&B Equipment Company. If a company’s current liabilities are increasing faster than its current assets, the company’s liquidity position is weakening. An increase in the quick ratio over time usually means that the company’s liquidity position is improving and that the company is managing its short-term assets well. Compared to N&B Equipment Company, Jing Foodstuffs Corporation has less liquidity and a lower reliance on outside cash flow to finance its short-term obligations. An increase in the current ratio over time always means that the company’s liquidity position is improving.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
| Jing Foodstuffs Corporation | N&B Equipment Company | Jing Foodstuffs Corporation | N&B Equipment Company | ||
| Assets | Liabilities | ||||
| Current assets | Current liabilities | ||||
| Cash | $574 | $369 | Accounts payable | $0 | $0 |
| Accounts receivable | 210 | 135 | Accruals | 127 | 0 |
| Inventories | 616 | 396 | Notes payable | 717 | 675 |
| Total current assets | $1,400 | $900 | Total current liabilities | $844 | $675 |
| Net fixed assets | Long-term bonds | 1,031 | 825 | ||
| Net plant and equipment | 1,100 | 1,100 | Total debt | $1,875 | $1,500 |
| Common equity | |||||
| Common stock | $406 | $325 | |||
| 219 | 175 | ||||
| Total common equity | $625 | $500 | |||
| Total assets | $2,500 | $2,000 | Total liabilities and equity | $2,500 | $2,000 |
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