Accounting

the basis used to classify assets as current or long-term is usually one year, because the operating cycle typically is less than one year

what is not a characteristic of the balance sheet? the balance sheet reports the changes in financial position

Find Long Term Liabilities backwards via ratios Inventories: $840,000 Total assets: $2,800,000 Current Ratio: 2.25 Quick Ratio: 1.20 Debt to Equity ratio: 1.8 If: Total assets = Total liabilities + Shareholder’s Equity And: Total liabilities = Current liabilities + Long-term liabilities Then: total assets = Current Liabilities + Long-term Liabilities + SE So: Long-term liabilities […]

Find Long Term Assets backwards via ratios Inventories: $840,000 Total assets: $2,800,000 Current Ratio: 2.25 Quick Ratio: 1.20 Debt to Equity ratio: 1.8 Total assets – Current assets = Long Term Assets $2,800,000 – $1,800,000 = $1,000,000

Find Shareholder’s Equity backwards via ratios Inventories: $840,000 Total assets: $2,800,000 Current Ratio: 2.25 Quick Ratio: 1.20 Debt to Equity ratio: 1.8 Debt to equity ratio = Total Liability / Shareholder’s Equity = 1.8 So: TL = 1.8(SE) Accounting Equation: TA = TL + SE Then: TL = TA – SE And: TA = $2,800,000 […]

Find Current Assets backwards via ratios Inventories: $840,000 Total assets: $2,800,000 Current Ratio: 2.25 Quick Ratio: 1.20 Debt to Equity ratio: 1.8 Current Ratio = Current assets / Current liabilities Quick Ratio = Current assets – Invent. = Current Liabilities Current Ratio 2.25 – Quick Ratio -1.20 = inventory/current liabilities 1.05 If: Inventory / current […]

For example, a business has net income of $100,000, income taxes of $20,000, and interest expense of $40,000. Based on this information, its times interest earned ratio is 4:1, which is calculated as: ($100,000 Net income + $20,000 Income taxes + $40,000 Interest expense) ÷ $40,000 Interest expense Example of times interest earned ratio

Times interest earned ratio Calculated by dividing income (before interest and income taxes) by the interest expense

Qualified opinion Scope limitation or a departure from GAAP.

Unqualified opinion The statements are presented fairly in conformity with GAAP.