Strategies to improve current ratio in accounting and financial reporting

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.