Auditing Theory and Practice: Financial Statement Analysis and Ratio Calculation

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
Name of the Student:
Name of the University:
Authors Note:

1
AUDITING THEORY AND PRACTICE
Contents
Introduction:....................................................................................................................................2
Part A:..............................................................................................................................................2
Part B:..............................................................................................................................................6
Part C:..............................................................................................................................................6
Conclusion:......................................................................................................................................9
References:....................................................................................................................................11

2
AUDITING THEORY AND PRACTICE
Introduction:
Financial statements contain all financial information about a business and its operations.
Balance sheet contains the assets and liabilities of a business whereas profit and loss account
shows the amount of profit earned or loss incurred by a business. These if properly analyzed can
be helpful to different stakeholders of a business. In this document a detailed assessment of
financial position and performance of different companies shall be ascertained by calculating
different ratios of these companies to take important decisions.
Part A:
Requirement (a):
Calculation of ratios:
Particulars and formula 2019 2018
Current ratio
(Total current assets / Total current liabilities)
Total current assets
Cash 18 000 12 000
Accounts receivable 70 000 60 000
Inventory 130 000 150 000
Total current assets 218,0
00.00
222,0
00.00

3
AUDITING THEORY AND PRACTICE
Total current liabilities 105 000 81 000
Current ratio (218000/105000)
2.08
(222000/81000)
2.74
Quick ratio
(Current assets less inventories / current liabilities)
Total current assets less inventories 88,0
00.00
72,0
00.00
Total current liabilities 105 000 81 000
Quick ratio (88000/105000)
0.84 0.89
Accounts receivable turnover (times and days)
In Times (Net credit sales / Average accounts receivable)
Net credit sales 630,0
00.00
490,0
00.00
Average accounts receivable 65,0
00.00
69,0
00.00
Accounts receivable in times