Accounting for Business

ACCOUNTING FOR
BUSINESS
STUDENT ID:
[Pick the date]

PART A
a) 1) Current Ratio – This is a ratio which provides measure of the capacity of the company
to successfully discharge the current liabilities.
2) Quick Ratio: Like current ratio, this particular ratio is also representative of short term
liquidity.
3) Accounts Receivable Turnover – This is an efficiency ratio which highlights the efficiency
of the company to collect cash from credit sales (debtors).
4) Inventory Turnover – Another efficiency ratio which highlights the efficiency with which
the company derives sales from the inventory.
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b) There is a significant drop in the current ratio in 2019 which does not auger well for the
short term liquidity of the company. It is noteworthy that the trend observed in quick ratio
is opposite as it has managed to register some marginal gains in 2019. Overall the
performance of the company in short term liquidity context is lacklustre in 2019. Having
said that, the ratios observed for 2019 also are quite healthy and these do not indicate any
concern in the present (Lasher, 2017).
There are significant issues which are visible on the efficiency front for the company. TO
begin with, the accounts receivables collection period continue to deviate from 30 days in
significant manner even after improvement in 2019. This is cause for concern considering
that it would elongate the cash cycle. In terms of inventory days also, the company has
made significant improvement in 2019 (176 days) over the corresponding value in 2018
(204 days). However, when compared with the industry average (101 days), the
performance in this regards is still poor (Parrino and Kidwell, 2014).
PART B
Definition of Income & Revenue
Income is defined as an economic benefit which may be realised in the following ways.
 Increase in assets
 Decrease in assets
 Cash inflows (not from equity contributors)
AASB 118 highlights that revenue is a type of income which the business tends to earn by
indulging in core business activities (AASB, 2014).
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