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The Accounting Cycle - Ratios

1. Answer the following question using an essay format with a maximum that ranges between 300-500 words for each question.
a) There are three main forms of firm's ownership sole proprietorships partnerships and corporations in business organizations. identify and explain these forms in private firms.
b) There are three types of activities (operating financing an investing) generate funds to the organization. identify and explain with examples these activities in private firms.

See attached.


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See the attached file.

a. Liquidity ratios are used to establish a company's ability to pay its short-term debt.

Current ratio = current assets / current liabilities
A higher current ratio is a better current ratio. It shows the company's ability to pay the short term debt using its current assets.

2012 2013
Current Assets 2000 3000
Current Liabilities 2000 4000
Current Ratio 1 0.75

This shows the current ratio going down. It also shows that the company is no longer able to pay all it short term debt using the current assets.

Quick Ratio = (Cash + Short-term investments + Accounts Receivable) / current liabilities
This ratio focuses on the more liquid of the short term assets, mainly excluding inventory. Again, a higher number is better.

2012 2013
Cash 500 500
Trade Receivables 1000 1500
Current Liabilities 2000 4000
Quick ...

Solution Summary

Calculations of ratios given balance sheet and Profit/Loss for Golf Corporation. Brief interpretation of calculations provided.