The following amounts were reported by Leau Ltd. in its most recent statement of financial position: Cash $31,760 Accounts payable $612,000 Accounts receivable 404,940 Wages payable 33,000 Inventory 786,060 Income tax payable 56,000 Prepaid insurance 15,880 Unearned revenue 93,000 Property, plant, and equipment (net) 1,529,000 Bank loan payable (due in 5 years) 52,000 New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect. Calculate the current ratio and quick ratio for Leau Ltd. (Round answers to 2 decimal places, e.g. 15.25.) Current ratio Quick ratio eTextbook and Media Partially correct answer iconYour answer is partially correct. Leau Ltd.’s bank loan includes covenants related to minimum current and quick ratios that the company must maintain. The covenants state that the company must maintain a current ratio of 1.40 or more, and a quick ratio of 0.63 or more. How would a $79,400 loan, which would be repayable in three years, affect your analysis? (Round answer to 2 decimal places, e.g. 15.25.) Quick ratio
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
| Cash | $31,760 | Accounts payable | $612,000 | |||
| Accounts receivable | 404,940 | Wages payable | 33,000 | |||
| Inventory | 786,060 | Income tax payable | 56,000 | |||
| Prepaid insurance | 15,880 | Unearned revenue | 93,000 | |||
| Property, plant, and equipment (net) | 1,529,000 | Bank loan payable (due in 5 years) | 52,000 |
| Current ratio | |||
| Quick ratio |
eTextbook and Media
| Quick ratio |
| The company wouldwould not meet its target. |
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