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Liquidity ratios - measure the short-term ability of the entity to pay its maturing obligations and to meet unexpected needs for cash. Purpose of the ratio Ratio Current ratio Quick or Acid-test ratio Receivable turn- I over ratio Average collection period Inventory turnover ratio Ratio Analysis - Liquidity Ratios Number of days in inventory Formula Current assets Current liabilities Cash, Short-term investment, & net receivables Current liabilities Net Credit Sales Average trade receivables (AR) 365 days Receivable turnover ratio Cost of goods sold Average Inventory 365 days Inventory turnover ratio • Measures short-term debt paying ability The ratio expresses the relationship of current assets to current liabilities. It represents the amount of current assets available for every peso of current liability. • Measures immediate short-term liquidity. • The ratio represents the amount of quick assets available for every peso of current liability. • Measures liquidity of receivables. • The ratio measures the number of times, on average, receivables are collected during the period. • Measures the collection efficiency of the entity. The computed period indicates the average number of days before receivables are collected. • Measures liquidity of inventory. • The ratio measures the number of times, on average, inventory is sold during the period. • Measures the sales efficiency of the entity . The computed number of days indicates the length of time spent before inventories are sold to customers.

Liquidity ratios - measure the short-term ability of the entity to pay its maturing obligations and to meet unexpected needs for cash. Purpose of the ratio Ratio Current ratio Quick or Acid-test ratio Receivable turn- I over ratio Average collection period Inventory turnover ratio Ratio Analysis - Liquidity Ratios Number of days in inventory Formula Current assets Current liabilities Cash, Short-term investment, & net receivables Current liabilities Net Credit Sales Average trade receivables (AR) 365 days Receivable turnover ratio Cost of goods sold Average Inventory 365 days Inventory turnover ratio • Measures short-term debt paying ability The ratio expresses the relationship of current assets to current liabilities. It represents the amount of current assets available for every peso of current liability. • Measures immediate short-term liquidity. • The ratio represents the amount of quick assets available for every peso of current liability. • Measures liquidity of receivables. • The ratio measures the number of times, on average, receivables are collected during the period. • Measures the collection efficiency of the entity. The computed period indicates the average number of days before receivables are collected. • Measures liquidity of inventory. • The ratio measures the number of times, on average, inventory is sold during the period. • Measures the sales efficiency of the entity . The computed number of days indicates the length of time spent before inventories are sold to customers.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please provide the following: • quick ratio • inventory turnover • account receivable Important note: please follow the formula on the lesson attached (photo)
Liquidity ratios - measure the short-term ability of the entity to pay its maturing obligations and to meet unexpected needs for cash. Purpose of the ratio Ratio Current ratio Quick or Acid-test ratio Receivable turn- over ratio Average collection period Inventory turnover ratio Ratio Analysis - Liquidity Ratios Number of days in inventory Formula Current assets Current liabilities Cash, Short-term investment, & net receivables Current liabilities Net Credit Sales Average trade receivables (AR) 365 days Receivable turnover ratio D Cost of goods sold Average inventory 365 days Inventory turnover ratio • Measures short-term debt paying ability •The ratio expresses the relationship of current assets current liabilities. It represents the amount of current assets available for every peso of current liability. • Measures immediate short-term liquidity. . The ratio represents the amount of quick assets available for every peso of current liability. • Measures liquidity of receivables. • The ratio measures the number of times, on average, receivables are collected during the period. • Measures the collection efficiency of the entity. . The computed period indicates the average number of days before receivables are collected. • Measures liquidity of inventory. • The ratio measures the number of times, on average, inventory is sold during the period. • Measures the sales efficiency of the entity • The computed number of days indicates the length of time spent before inventories are sold to customers.
Transcribed Image Text:Liquidity ratios - measure the short-term ability of the entity to pay its maturing obligations and to meet unexpected needs for cash. Purpose of the ratio Ratio Current ratio Quick or Acid-test ratio Receivable turn- over ratio Average collection period Inventory turnover ratio Ratio Analysis - Liquidity Ratios Number of days in inventory Formula Current assets Current liabilities Cash, Short-term investment, & net receivables Current liabilities Net Credit Sales Average trade receivables (AR) 365 days Receivable turnover ratio D Cost of goods sold Average inventory 365 days Inventory turnover ratio • Measures short-term debt paying ability •The ratio expresses the relationship of current assets current liabilities. It represents the amount of current assets available for every peso of current liability. • Measures immediate short-term liquidity. . The ratio represents the amount of quick assets available for every peso of current liability. • Measures liquidity of receivables. • The ratio measures the number of times, on average, receivables are collected during the period. • Measures the collection efficiency of the entity. . The computed period indicates the average number of days before receivables are collected. • Measures liquidity of inventory. • The ratio measures the number of times, on average, inventory is sold during the period. • Measures the sales efficiency of the entity • The computed number of days indicates the length of time spent before inventories are sold to customers.
Prepare common size statement Gross sales Sales return Sales Discount Net sales COS Selling expense Admin expense Asset Cash AR Prepaid insurance Prepaid rent Marketable securities Merchandise inventory Furniture and fixtures [net] Land Building [net] Total assets Liabilities and Equity AP Notes Payable (due in 6 months) Total liabilities Shareholders Equity Ordinary shares Retained earnings Treasury shares Total Shareholders equity Total liabilities and Shareholders Equity B 2018 P3,050,000.00 P3,200.00 P3,000.00 P3,043,800.00 P2,790,000.00 P500,000.00 P300,000.00 2018 P350,000.00 P1,500,000.00 P30,000.00 P120,000.00 P200,000.00 P350,000.00 P400,000.00 P900,000.00 P2,500,000.00 P6,350,000.00 P900,000.00 P490,000.00 P1,390,000.00 P4,000,000.00 P1,010,000.00 (P50,000.00) P4,960,000.00 P6,350,000.00 P0.00 C D Comprehensive income 2019 P4,750,000.00 P16,000.00 P7,000.00 P4,727,000.00 P2,299,000.00 P900,000.00 P700,000.00 Statement of Financial position 2019 P627,000.00 P1,600,000.00 P15,000.00 P120,000.00 P500,000.00 P550,000.00 P350,000.00 P900,000.00 P2,250,000.00 P6,912,000.00 P1,100,000.00 P600,000.00 P1,700,000.00 P4,000,000,00 P1,212,000.00 P5,212,000.00 P6,912,000.00 P0.00 E F 2020 P8,988,000.00 P35,000.00 P20,100.00 P8,932,900.00 P5,051,000.00 P3,000,000.00 P1,500,000.00 2020 P550,000.00 P1,200,000.00 P50.000.00 P150,000.00 P1,000,000.00 P400,000.00 P300,000.00 P900,000.00 P2,000,000.00 P6,550,000.00 P600,000.00 P200,000.00 P800,000.00 P5000.000.00 P750,000.00 P5,750,000.00 P6,550,000.00 P0.00 G H 2021 P13,450,000.00 P60,000.00 P45,000.00 P13,345,000.00 P7,605,000.00 P3,090,000.00 P1,900,000.00 2021 P1,500,000.00 P2,000,000.00 P50.000.00 P150,000.00 P500,000.00 P500,000.00 P450,000.00 P900,000.00 P1,750,000.00 P7,800,000.00 P990,000.00 P600,000.00 P1,590,000.00 P5,000,000.00 P1,210,000.00 P6,210,000.00 P7,800,000.00 P0.00
Transcribed Image Text:Prepare common size statement Gross sales Sales return Sales Discount Net sales COS Selling expense Admin expense Asset Cash AR Prepaid insurance Prepaid rent Marketable securities Merchandise inventory Furniture and fixtures [net] Land Building [net] Total assets Liabilities and Equity AP Notes Payable (due in 6 months) Total liabilities Shareholders Equity Ordinary shares Retained earnings Treasury shares Total Shareholders equity Total liabilities and Shareholders Equity B 2018 P3,050,000.00 P3,200.00 P3,000.00 P3,043,800.00 P2,790,000.00 P500,000.00 P300,000.00 2018 P350,000.00 P1,500,000.00 P30,000.00 P120,000.00 P200,000.00 P350,000.00 P400,000.00 P900,000.00 P2,500,000.00 P6,350,000.00 P900,000.00 P490,000.00 P1,390,000.00 P4,000,000.00 P1,010,000.00 (P50,000.00) P4,960,000.00 P6,350,000.00 P0.00 C D Comprehensive income 2019 P4,750,000.00 P16,000.00 P7,000.00 P4,727,000.00 P2,299,000.00 P900,000.00 P700,000.00 Statement of Financial position 2019 P627,000.00 P1,600,000.00 P15,000.00 P120,000.00 P500,000.00 P550,000.00 P350,000.00 P900,000.00 P2,250,000.00 P6,912,000.00 P1,100,000.00 P600,000.00 P1,700,000.00 P4,000,000,00 P1,212,000.00 P5,212,000.00 P6,912,000.00 P0.00 E F 2020 P8,988,000.00 P35,000.00 P20,100.00 P8,932,900.00 P5,051,000.00 P3,000,000.00 P1,500,000.00 2020 P550,000.00 P1,200,000.00 P50.000.00 P150,000.00 P1,000,000.00 P400,000.00 P300,000.00 P900,000.00 P2,000,000.00 P6,550,000.00 P600,000.00 P200,000.00 P800,000.00 P5000.000.00 P750,000.00 P5,750,000.00 P6,550,000.00 P0.00 G H 2021 P13,450,000.00 P60,000.00 P45,000.00 P13,345,000.00 P7,605,000.00 P3,090,000.00 P1,900,000.00 2021 P1,500,000.00 P2,000,000.00 P50.000.00 P150,000.00 P500,000.00 P500,000.00 P450,000.00 P900,000.00 P1,750,000.00 P7,800,000.00 P990,000.00 P600,000.00 P1,590,000.00 P5,000,000.00 P1,210,000.00 P6,210,000.00 P7,800,000.00 P0.00
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