Two measures for evaluating a business's short-term liquidity are working capital and the current ratio. Working capital is the dollar amount of a company’s current assets less current liabilities as shown below: Working capital = Current assets - Current liabilities An excess of the current assets over the current liabilities implies that the company is able to pay its current liabilities. If the current liabilities are greater than the current assets, the company may not be able to pay its debts and continue in business. The current ratio is another means of expressing the relationship between current assets and current liabilities. The current ratio is computed by dividing current assets by current liabilities, as shown below.
The expenses used to figure the cost of goods sold, capital expenses, and personal expenses are not considered business expenses and should be separated. The types of expenses that go into figuring the cost of goods sold are the cost of products or raw materials, including freight, storage, direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products, and factory overhead Capital expenses are considered assets in your business. In general, there are three types of costs you capitalize which are Business start-up cost, business assets and improvements. Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts.
The aggregate concept treats partnerships more align with an individual. Each partnership is viewed as an aggregation of each partner’s separate interest in the assets and liabilities of the partnership. For example, each partner is proportioned and taxed on a certain amount of income the partnership creates. The partnership, as a whole, is never taxed. The entity concept treats partnerships more align with a corporation.
If not, how do they differ? No, Valentin is not correct. Liquidity is the ability for a company to be able to pay its obligations once they have matured and are able to meet unexpected needs for cash. A Solvency is the ability for a company to last as a whole. BE10-1 Kananga Company has these obligations at December 31: (a) a note payable for $100,000 due in 2 years – Yes, this is a long term liability.
As the formula given by book, we can get the debt ratio of Wal-Mart is 0.51: 1. Creditors have claims of 51 cents against every $1 of assets that Wal-Mart owns. It’s a moderate debt ratio, it indicates a smallers chance of creditor losses in case of liquidation. The industry median is 0.58: 1, Wal-Mart very close to it. Although Wal-Mart does not appear to be overburdened with debt, the company should pay attention to its borrowing additional money.
A corporation is a legal entity created under state laws, and it is separate and distinct from its owners and managers. Advantages 1. unlimited life. It is not limited to the life of the founder, 2. easy transferability of ownership-ownership interest are divided into shares of stock. 3. limited liability- losses are limited to the actual funds invested. Disadvantages 1.
Of these situations, two have been met: (c) the lease term is for the major part of the economic life of the asset even if title is not transferred and (d) at the lease inception, the present value of the minimum lease payments amount to at least substantially all of the fair value of the leased asset. As a result, the senior accountant's judgement based on the useful life of the equipment is accurate. In terms of calculations, the present value of minimum payments using the annuity table would be as follows: $100,000 * 2.4869 = $ 248,690 + 15,026 (Residual value) = $ 263,716 This calculation shows how the minimum lease payment amounts to substantially all of the fair value of the leased asset, of $265,000. However, the senior accountant made an error in using the straight-line method for interest expense.
Financial Ratio Analysis of Dr. Pepper Snapple Group Liquidity ratios for a company help whomever is analyzing the data determine the company’s liquidity. When a company has good liquidity they are able to pay off their short term debt without having to take out any additional financing. We will look at Dr. Pepper Snapple Group’s current ratio for 2009 and 2010. The current ratio is calculated by taking the company’s current assets and dividing it by the current liabilities. It shows how many times the current assets can cover the current liabilities.
It is your company responsibility for keeping records of your business expenses and personal use of any property used by your company during the period covered by the period covered by the above return. 1. I will perform the following services: I will compile from information you provide, the ___________financial statements of the company for the _________ ending_____________. A compilation is limited to presenting in the form of financial statements information that is the representation of management. I will not review or audit the financial statements and accordingly, will not express an opinion or any other form of assurance on them.
Once a company identifies the economic events, it records those events in order to provide a history of its financial activities. It is important to note here that recording consists of keeping a systematic, chronological summary of events measured in the accepted currency. Finally, the company communicates the collected information to interested users by means of accounting reports. The most common of these reports are called financial statements. To make their reports meaningful, a company reports the recorded data in a standardized way according to generally accepted accounting principles (GAAP).