Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.
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.
The following data were taken from the balance sheet of the Sandy Koufax Company at the end of the two recent fiscal years Current Year Previous Year
Cash $ 480,000 $ 392,000
Marketable Securities 576,000 411,600
Accounts and notes receivable 384,00 316,400 Inventories 408,000 333,200
Prepaid expenses 552,000 506,800
Total current assets $2,400,000 $1,960,000
Accounts and notes payable (short-term) 600,000 525,000
Accrued liabilities 200,000 175,000
Total current liabilities $800,000 $700,000
- Determine for each year (1) the
working capital , (2) thecurrent ratio , and (3) the quick ratio. Round ratios to one decimal place.
BONUS PROBLEM!
Given below are selected balance sheet items and ratios as of June 30, 2019 for the More Debits than Credits School of Accounting which issues erasers instead of diplomas to its graduates.
Total
no-par common stock issued at $6 per share) $1,000,000
Plant and equipment (net) 470,000
Asset Turnover rate per year (sales/total assets) 3 times
Inventory turnover rate per year 6 times
Gross profit percentage 30%
Ratio of current liabilities to stockholders’ equity
(there is no long term debt) 1.2 to 1
Acid-Test ratio (quick ratio) 0.8 to 1
Assume that balance sheet figures represent average amounts and that all sales are made on account.
Instructions: From the foregoing information, construct a balance sheet for the corporation as of June 30, 2019 in as much detail as the data permits.
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