Accounting for Business: Ratios, Income Classification, and Lending Decisions

ACCOUNTING FOR BUSINESS 1
ACCOUNTING FOR
BUSINESS

ACCOUNTING FOR BUSINESS 2
Contents
Part A:...........................................................................................................................3
Sub part a:.................................................................................................................3
Sub part b:.................................................................................................................4
Part B:...........................................................................................................................5
Part C:...........................................................................................................................5
Sub part a:.................................................................................................................5
Sub part b:.................................................................................................................6
Sub part c:.................................................................................................................7
References...................................................................................................................8

ACCOUNTING FOR BUSINESS 3
Part A:
Sub part a:
The current ratio is the ratio which is also known as the working capital ratio. This helps in
the measurement of the capability of the business. It helps in the determination of the fact
whether the company would be able to meet its short term liabilities that are due within a
period of 1 year. This ratio helps in considering the weight of the current assets and the
weight of the current liabilities. It helps in the determination of the financial health of the
company and the way in which the liquidity of the current assets could be maximised so
that the debt and the payables could be settled (Corporate finance institute, 2019).
The quick ratio is also known as the acid test ratio which helps in the measurement of the
ability of the company to meet its short term liabilities. And also determines the
convertibility of assets into cash. These are cash, marketable securities etc. (Corporate
finance institute, 2019).
The accounts receivables turnover ratio is the ratio which helps in the determination of
efficiency that helps in ascertaining the number of times, the business could turn the
accounts receivables into cash. In other words, it shows the number of times, the business
is able to collect the average accounts receivables during the period (Accounting course,
2019).
Inventory turnover ratio is the ratio that helps in the management of inventory in the most
efficient manner. This ratio shows the number of times, the inventory could be concerted
into sales during the year (Accounting course, 2019).
The following table shows the calculated ratios:
Particulars 2019 2018
Current ratio:
2.0761904
8
2.7407407
4
Current Assets
2,18,000.0
0
2,22,000.0
0
Current Liabilities
1,05,000.0
0
81,000.0
0
Quick ratio:
0.8380952
4
0.8888888
9
Current Assets-
inventories
88,000.0
0
72,000.0
0
Current Liabilities
1,05,000.0
0
81,000.0
0
Accounts receivables
ratio:
9.6923076
9
7.1014492
8
Credit sales
6,30,000.0
0
4,90,000.0
0