The following accounting information exists for Aspen and Willow companies: Aspen Willow Cash $ 13,000 $ 23,000 Wages payable 21,000 22,500 Merchandise inventory 26,095 61,400 Building 60,000 110,000 Accounts receivable 30,265 35,950 Long-term notes payable 75,000 120,000 Land 45,000 55,000 Accounts payable 43,000 51,500 Sales revenue 230,000 270,000 Expenses 195,000 235,000 Required a-1. Determine the amount of current assets and current liabilities for each company. a-2. Compute the current ratio for each company. b. Assuming that all assets and liabilities are listed above, compute the debt-to-assets ratios for each company. c-1. Determine which company has the greater financial risk in the short term. c-2. Determine which company has the greater financial risk in the long term.
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 accounting information exists for Aspen and Willow companies:
Aspen Willow
Cash $ 13,000 $ 23,000
Wages payable 21,000 22,500
Merchandise inventory 26,095 61,400
Building 60,000 110,000
Long-term notes payable 75,000 120,000
Land 45,000 55,000
Accounts payable 43,000 51,500
Sales revenue 230,000 270,000
Expenses 195,000 235,000
Required
a-1. Determine the amount of current assets and current liabilities for each company.
a-2. Compute the
b. Assuming that all assets and liabilities are listed above, compute the debt-to-assets ratios for each company.
c-1. Determine which company has the greater financial risk in the short term.
c-2. Determine which company has the greater financial risk in the long term.
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