Strategies to improve current ratio in accounting and financial reporting

This article discusses the importance of maintaining the current ratio in accounting and financial reporting. It provides various strategies to improve the current ratio, such as effective monitoring of account receivables, negotiating with suppliers, paying off current liabilities, improving turnover, and financing current assets through equity. The article also highlights the ethical responsibility of organizations towards shareholders for compliance of requirements related to current ratio.

Accounting and financial reporting

ANSWER (C)
At present Sharon is presently facing is a significant problem regarding the ethical responsibility
of the organization towards the shareholders for compliance of requirements related to current
ratio. The current ratio measures the financial performance of the company; in terms of the
entity’s ability to pay its short-term liability, therefore it is very important to maintain this ratio
(Boyce, 2014). In the present situation, various course of actions that can be taken by Sharon to
resolve the problem.
Sharon should monitor the account receivables effectively on a regular basis for ensuring that
billing to the client is done in proper manner and the payments from them is received on timely
basis. Along with this Sharon can also negotiate with its supplier to enhance the credit period
from the suppliers which will assist in better management of current working capital (Hartman,
DesJardins and MacDonald, 2014).
Another alternative to overcome with this problem is to pay the current liabilities of the
company. However the payment of current liability also may lead to decrease in cash in hand,
therefore Sharon should pay off the current liability of the company after retaining the proper
cash balance and making payment from long term financial sources (Ni, and Van Wart, 2015).
Sharon should also make the efforts to improve the turnover of the company, which leads to
increases in account receivables of the company, at the same time company should also identify
the opportunities for reducing the overhead expenses.
However, this option can be applied by the Sharon as the current ratio has to be calculated on the
figures stated on the 30june. Another method by which current ratio can be improved is that the
company can pay its short-term debts by procuring the long-term loans as generally the interest
rates, as well as the payment terms on the long-term loan, are less and easy as compare to the
short-term debts, thus the long-term financing is the good alternative for the company by
connecting the terms of the long-term debt with the maturing dates of the short-term liabilities.
Further by continuous evaluation of the inventory level, the company can ensure the high value
of inventory, by which the current assets of the company can be increased. The company can
also through the sale of an unusable asset, increase the amount of cash in hand. The further

company can enhance the current assets by financing with the shareholder’s fund as if current
assets are financed by the equity instead of the creditors then the current asset will increase, and
the current liability will remain the same, by which the current ratio will get improved. The
company should use the sweep accounts for keeping the money. Several financial institutions
provide the sweep account facility in their bank. This will give the benefit to earn the extra
interest on any excess cash by transferring the fund into interest-bearing account when it is not
required, and sweeping the fund back again in operating account when it is required (Dixon and
Frolova, 2013).
Thus Sharon has to apply the best method to resolve the dilemma faced by him, according to the
situation of the organization.

ANSWER (D)
If I am at the place of Sharon, then I have alternatives of various strategies for enhancing the
current ratio, as per the present business situation. Since there are various alternatives available
for improving the current ratio of the company, as discussed above but I will choose that options
which lead to enhancing the current ratio without any delay and support compliance of
accounting ethics.
Since the Sharon is the assistant accountant of the Brady Industrial product, if I was at the place
of the Sharon, then I would evaluate the current asset and current liabilities of the company on a
regular period of time, since it is the condition of the Local town bank through the company
obtained the loan, is to maintain the current ratio of minimum 1.2:1. With this approach, I can
get to know about the current ratio of the company before the finalization of the accounts and
thereby apply the option for improving the current asset in a meanwhile, since in the present
study on the 30june, Sharon identify that the current ratio of the company was not as per the
terms and condition of the Local town bank and therefore company treated is non-current asset
as current asset for increasing the current ratio and ethical dilemma arises as it is not good
practice to window dressing the financial account for the betterment of the company as it
misleads the shareholders of the company (Weiss, 2014). Thus if this situation can identify
before the finalization of the accounts, then it can be easy to improve the current ratio of the
company, without any conflict of interest of the shareholders (Breton, and Stolowy, 2015).
Further another alternative I can choose is that the delay in purchasing of the capital asset of the
company, which leads to saving in cash as well as enhance the current ratio. Further by financing
the current assets of the company through the owners capital such as equity, reserves and
surplus, by which the current asset of the company increases while the current liability of the
company will remain same (Wang, and Sarkis, 2017). Along with this recovery from the debtors
and selling the unusable assets also leads to an improvement of the current assets. I choose the
above alternative as it is very quick to enhance the current asset as well as a current ratio in a
short duration of the time. For achieving the current ratio as specified by the bank at least
$100000, the increment in the current asset is required. However, these alternatives also applied
before the 30th June for getting the required current ratio 1.2:1. So that the account of the

company cannot be altered by the window dressing, and the trust of the shareholders can be
maintained (Lin, Zhao, and Guan, 2014).

REFERENCES
Boyce, G. 2014. Accounting, ethics and human existence: Lightly unbearable, heavily
kitsch. Critical Perspectives on Accounting. 25(3). 197-209
Breton, G. and Stolowy, H., 2015. Manipulation of Accounts. Wiley Encyclopedia of
Management, pp.1-6.
Dixon, J. and Frolova, Y. 2013. Accounting for good governance: the fair value
challenge. Corporate Governance: The international journal of business in society. 13(3). 318-
331.
Hartman, L. P., Desjardins, J. R. and MacDonald, C. 2014. Business ethics: Decision making for
personal integrity and social responsibility. McGraw-Hill.
Lin, F., Zhao, L. and Guan, L., 2014. Window dressing in reported earnings: A comparison of
high-tech and low-tech companies. Emerging Markets Finance and Trade, 50(sup1), pp.254-
264.
Ni, A. and Van Wart, M., 2015. Corporate Social Responsibility: Doing Well and Doing Good.
In Building Business-Government Relations (pp. 175-196). Routledge.
Wang, Z. and Sarkis, J., 2017. Corporate social responsibility governance, outcomes, and
financial performance. Journal of Cleaner Production, 162(1), pp.1607-1616.
Weiss, J.W., 2014. Business ethics: A stakeholder and issues management approach. Berrett-
Koehler Publishers.