ch04 completing the accounting cycle, intro accounting, 21st edition warren reeve fess eng
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Chapter Chapter 44Completing the Completing the
Accounting CycleAccounting CycleAccounting, 21st Edition
Warren Reeve Fess
PowerPoint Presentation by Douglas CloudProfessor Emeritus of AccountingPepperdine University
© Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved.
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1. Review the seven basic steps of the accounting cycle.2. Prepare a work sheet.3. Prepare financial statements from a work sheet.4. Prepare adjusting and closing entries from a work
sheet.5. Explain what is meant by the fiscal year and the
natural business year.6. Analyze and interpret the financial solvency of a
business by computing working capital and the current ratio.
ObjectivesObjectives
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
Seven Basic Steps of the Accounting Cycle
1. Transactions are analyzed and recorded in the journal.2. Transactions are posted to the ledger.3. A trial balance is prepared, adjustment data are
assembled, and an optional work sheet is completed.4. Financial statements are prepared.5. Adjusting entries are journalized and posted.6. Closing entries are journalized and posted.7. A post-closing trial balance is prepared.
Assets are commonly divided into classes and that two of these classes are current
assets and property, plant, and equipment.
That’s correct. Cash and other assets that are expected to be converted into cash, sold, or used up usually in less than a
year are current assets.
For example?
Well… besides cash, there’s notes receivable, accounts receivable, supplies, and
other prepaid items.
So, assets that have a life over a year are listed under
property, plant, and equipment.
There are some exceptions, but that’s basically correct. Assets
such as office equipment, machinery, buildings, and land
would appear under that heading.
Liabilities due usually within one year or less and that are to be paid
out of current assets are called current liabilities.
Accounts payable Wages payable Interest payable Unearned fees
Liabilities not due for more than a year usually are long-term liabilities.
Mortgage note payable
Mortgage payableBond payable
The work sheet is a useful device for understanding the flow of accounting data from the unadjusted trial balance to
the financial statements.
The Work SheetThe Work Sheet
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
Prepared from the general ledger. Accounts are listed in the following order: assets, liabilities, owner’s equity, revenues, and expenses.
Adjustments are entered here. Two possibilities:1. Deferrals – Existing balances are
changed.2. Accruals – New information is
entered.
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
The Work SheetThe Work Sheet
The Work SheetThe Work Sheet
Adjustments are combined with the trial balance. Account balances are now adjusted.
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
The Unadjusted The Unadjusted Trial BalanceTrial Balance
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(a) The (a) The SuppliesSupplies account has a debit of account has a debit of $2,000. A count of supplies at the end of $2,000. A count of supplies at the end of the period reveals that $760 is on hand. the period reveals that $760 is on hand. Therefore, $1,240 in supplies was used Therefore, $1,240 in supplies was used during the two-month period.during the two-month period.
Cash 2,065Accounts Receivable 2,220Supplies 2,000Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
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10111213141516171819202122
(a) 1,240
(a) 1,240
(b)(b) The The Prepaid Insurance Prepaid Insurance account has a account has a debit balance of $2,400, which debit balance of $2,400, which represents prepayment of insurance for represents prepayment of insurance for 24 months beginning December 1. 24 months beginning December 1. Thus, the insurance expense for this Thus, the insurance expense for this month is $100 ($2,400 ÷ 24).month is $100 ($2,400 ÷ 24).
Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
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10111213141516171819202122
Insurance Expense (b) 100
Accounts are added as needed.
(b) 100
(c) The (c) The Unearned Rent Unearned Rent account has a credit account has a credit balance of $360, which represents the balance of $360, which represents the receipt of three-months’ rent beginning receipt of three-months’ rent beginning with December 1. Thus, the rent revenue with December 1. Thus, the rent revenue for December is $120.for December is $120.
FOR REN
T
Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
Insurance Expense (b) 100
(c) 120
Rent Revenue (c) 120
(d) Wages accrued but not paid at (d) Wages accrued but not paid at the end of December total $250.the end of December total $250.
Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
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10111213141516171819202122
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250
(d) 250
(e) Fees accrued at the end of (e) Fees accrued at the end of December, but not recorded, December, but not recorded, total $500.total $500.
Cash 2,065Accounts Receivable 2,220Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
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10111213141516171819202122
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250
(e) 500
(e) 500
(f) Depreciation of the office (f) Depreciation of the office equipment is $50 for December.equipment is $50 for December.
Cash 2,065Accounts Receivable 2,220 (e) 500Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340 (e) 500Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250Depreciation Expense (f) 50Accum. Depreciation (f) 50
Cash 2,065Accounts Receivable 2,220 (e) 500Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340 (e) 500Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
NetSolutionsWork Sheet
For the Two Months Ended December 31, 2005
123456789
10111213141516171819202122
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50
To make more space, let’s remove
the heading.
Cash 2,065Accounts Receivable 2,220 (e) 500Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340 (e) 500Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
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10111213141516171819202122232425
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50
2,260 2,260Summed Summed
and and ruledruled
31
Next, the unadjusted Trial Balance columns and the Adjustments columns are
combined to determine the amounts displayed in the Adjusted Trial Balance.
Cash 2,065Accounts Receivable 2,220 (e) 500Supplies 2,000 (a) 1,240Prepaid Insurance 2,400 (b) 100Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 360 (c) 120Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,340 (e) 500Wages Expense 4,275 (d) 250Rent Expense 1,600Utilities Expense 985Supplies Expense 800 (a) 1,240Miscellaneous Expense 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
123456789
10111213141516171819202122232425
Insurance Expense (b) 100 Rent Revenue (c) 120 Wages Payable (d) 250 Depreciation Expense (f) 50 Accum. Depreciation (f) 50
2,260 2,260
33
Cash 2,065 2,065Accounts Receivable 2,220 (e) 500 2,720Supplies 2,000 (a) 1,240 760Prepaid Insurance 2,400 (b) 100 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 360 (c) 120 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,340 (e) 500 16,840Wages Expense 4,275 (d) 250 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 800 (a) 1,240 2,040Miscellaneous Expense 455 455
42,600 42,600
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Adjustments Trial Balance
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10111213141516171819202122232425
Insurance Expense (b) 100 100 Rent Revenue (c) 120 120 Wages Payable (d) 250 250 Depreciation Expense (f) 50 50 Accum. Depreciation (f) 50 50
2,260 2,260 43,400 43,400
34
Revenue and expense balances in the Adjusted Trial Balance column are extended to the Income Statement column.
Adjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Income State. Balance Sheet
The Work SheetThe Work Sheet
Asset, liability, owner’s equity, and drawing balances in the Adjusted Trial Balance column are extended to the Balance Sheet column.
Adjusted TB
Accounts Dr Cr Dr Cr Dr Cr
Income State. Balance Sheet
The Work SheetThe Work Sheet
To make room on the slides for the Income statement and
Balance Sheet columns, the Trial Balance and Adjustments columns have been removed.
Cash 2,065Accounts Receivable 2,720Supplies 760Prepaid Insurance 2,300Land 20,000Office Equipment 1,800Accounts Payable 900Unearned Rent 240Chris Clark, Capital 25,000Chris Clark, Drawing 4,000Fees Earned 16,840Wages Expense 4,525Rent Expense 1,600Utilities Expense 985Supplies Expense 2,040Miscellaneous Expense 455
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Income Statement Balance Sheet
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Insurance Expense 100 Rent Revenue 120 Wages Payable 250 Depreciation Expense 50 Accum. Depreciation 50
43,400 43,400
38
Now, let’s extend the balances from the Adjusted Trial
Balance column.
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,300 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 240 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,840 16,840Wages Expense 4,525 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 2,040 2,040Miscellaneous Expense 455 455
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Income Statement Balance Sheet
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10111213141516171819202122232425
Insurance Expense 100 100 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50
43,400 43,400
40
These four columns are
summed.
Cash 2,065 2,065Accounts Receivable 2,720 2,720Supplies 760 760Prepaid Insurance 2,300 2,300Land 20,000 20,000Office Equipment 1,800 1,800Accounts Payable 900 900Unearned Rent 240 240Chris Clark, Capital 25,000 25,000Chris Clark, Drawing 4,000 4,000Fees Earned 16,840 16,840Wages Expense 4,525 4,525Rent Expense 1,600 1,600Utilities Expense 985 985Supplies Expense 2,040 2,040Miscellaneous Expense 455 455
Account Title Debit Credit Debit Credit Debit Credit
Adjusted Trial Balance Income Statement Balance Sheet
123456789
10111213141516171819202122232425
Insurance Expense 100 100 Rent Revenue 120 120 Wages Payable 250 250 Depreciation Expense 50 50 Accum. Depreciation 50 50
43,400 43,400 9,755 16,960 33,645 26,440
42
The difference between the Income Statement column
totals is the net income (or net loss) for the period.
The difference between the Balance Sheet column totals
is also the income (or net loss) for the period.
9,755 16,960 33,645 26,4407,205 7,205
16,960 16,960 33,645 33,645
Income Statement Balance Sheet
Net IncomeNet Income Net IncomeNet Income
NetSolutionsIncome Statement
For Two Months Ended December 31, 2005
Fees earned $16,840Rent revenue 120
Total revenues $16,960Expenses:
Wages expense $ 4,525Supplies expense 2,040Rent expense 1,600Utilities expense 985Insurance expense 100Depreciation expense 50Miscellaneous expense 455
Total expenses 9,755Net income $ 7,205
Every amount on this income statement was taken from the Income Statement column of the work sheet.
NetSolutionsStatement of Owner’s Equity
For the Two Months Ended December 31, 2005
Chris Clark, Capital, November 1, 2005 $ 0Investment on November 1, 2005 $25,000Net income for November and December 7,205
$32,205Less withdrawals 4,000Increase in owner’s equity 28,205Chris Clark, Capital, December 31, 2005 $28,205Either from the Either from the
income income statement or the statement or the
work sheet.work sheet.
From the From the Balance Sheet Balance Sheet
debit column of debit column of the work sheet.the work sheet.
NetSolutionsBalance Sheet
December 31, 2005 Assets LiabilitiesCurrent assets: Current liabilities:
Cash $ 2,065 Accounts payable $900Accounts receivable 2,720 Wages payable 250Supplies 760 Unearned rent 240Prepaid insurance 2,300 Total liabilities$ 1,390 Total current assets $ 7,845
Property, plant, and equipment:
Land $20,000Office equip. $1,800Less accum.
depreciation 50 1,750 Owner’s Equity Total property, plant Chris Clark, Capital 28,205
and equipment 21,750 Total liabilities and
Total assets $29,595 owner’s equity$29,595
From the From the Statement Statement
of Owner’s of Owner’s EquityEquity
Adjusting and Closing EntriesAdjusting and Closing Entries
Adjusting entries are recorded in the journal at the
end of the accounting period.
Adjusting and Closing EntriesAdjusting and Closing Entries
If a work sheet has been prepared, the data for these entries are in the Adjustments columns.
OWNER’S CAPITALOWNER’S CAPITAL
The Closing ProcessThe Closing Process
Income Summary
11Revenues are transferred to Income Summary22
Expenses are transferred to Income Summary
33 Net Income or Net Loss is transferred to Owner’s Capital
44 Drawings are transferred to Owner’s Capital
OWNER’S CAPITALOWNER’S CAPITAL
Income Summary
11Revenues are transferred to Income Summary22
Expenses are transferred to Income Summary
33 Net Income or Net Loss is transferred to Owner’s Capital
44 Drawings are transferred to Owner’s Capital
The The Income Summary Income Summary account does not appear on account does not appear on
the financial statements.the financial statements.
Adjusting and Closing EntriesAdjusting and Closing Entries
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation ExpenseBal. 50
Utilities ExpenseBal. 985
Supplies ExpenseBal. 2,040
Insurance ExpenseBal. 100
Miscellaneous ExpenseBal. 455
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
Chris Clark, Capital
Bal. 25,000
Chris Clark, Drawing
Bal. 4,000
Income Summary
Note: Note: The The balances shown balances shown
are adjusted are adjusted balances before balances before
closing. The closing. The following following sequence sequence
demonstrates the demonstrates the closing process.closing process.
The Closing ProcessThe Closing Process
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation ExpenseBal. 50
Utilities ExpenseBal. 985
Supplies ExpenseBal. 2,040
Insurance ExpenseBal. 100
Miscellaneous ExpenseBal. 455
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
Chris Clark, Capital
Bal. 25,000
Chris Clark, Drawing
Bal. 4,000
Income Summary
Debit each revenue account for the amount of its
balance, and credit Income Summary
for the total revenue.
16,840
120
16,960
The Closing ProcessThe Closing Process
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation ExpenseBal. 50
Utilities ExpenseBal. 985
Supplies ExpenseBal. 2,040
Insurance ExpenseBal. 100
Miscellaneous ExpenseBal. 455
Chris Clark, Capital
Bal. 25,000
Chris Clark, Drawing
Bal. 4,000
Income Summary
Debit Income Summary for the total expenses and credit each expense
account for its balance.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,9609,775
455
100
2,040
985
50
1,600
4,525
The Closing ProcessThe Closing Process
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation ExpenseBal. 50
Utilities ExpenseBal. 985
Supplies ExpenseBal. 2,040
Insurance ExpenseBal. 100
Miscellaneous ExpenseBal. 455
Chris Clark, Capital
Bal. 25,000
Chris Clark, Drawing
Bal. 4,000
Income Summary
Debit Income Summary for the
amount of its balance (in this
case, the net income) and credit the capital account.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,9609,775
455
100
2,040
985
50
1,600
4,525
7,205
7,205
The Closing ProcessThe Closing Process
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation ExpenseBal. 50
Utilities ExpenseBal. 985
Supplies ExpenseBal. 2,040
Insurance ExpenseBal. 100
Miscellaneous ExpenseBal. 455
Chris Clark, Capital
Bal. 25,000
Chris Clark, Drawing
Bal. 4,000
Income Summary
Debit the capital account for the balance of the
drawing account, and credit drawing
for the same amount.
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,840
120
16,9609,775
455
100
2,040
985
50
1,600
4,525
7,205
7,205
4,000
4,000
The Closing ProcessThe Closing Process
Wages Expense
Bal. 4,525
Rent Expense
Bal. 1,600
Depreciation ExpenseBal. 50
Utilities ExpenseBal. 985
Supplies ExpenseBal. 2,040
Insurance ExpenseBal. 100
Miscellaneous ExpenseBal. 455
Chris Clark, Capital
Bal. 25,000
Chris Clark, Drawing
Bal. 4,000
Income Summary
Fees Earned
Bal. 16,840
Rent Revenue
Bal. 120
16,480
120
16,9609,775
445
100
2,040
985
50
1,600
4,525
7,205
7,205
4,000
4,000
Close RevenuesClose Revenues
Close ExpensesClose Expenses
Close Income SummaryClose Income Summary
Close DrawingClose Drawing
16,84016,840
120120
16,96016,960
4,5254,525
1,6001,600
5050
985985
2,0402,040
100100
455455
9,7759,775
7,2057,205
7,2057,205
4,0004,000
4,0004,000
Review of the Closing ProcessReview of the Closing Process
After the closing entries are posted, all of the
temporary accounts have zero balances.
Post-closing Trial BalancePost-closing Trial BalanceNetSolutions
Post-Closing Trial BalanceDecember 31, 2005
Cash 2 065 00Accounts Receivable 2 720 00Supplies 760 00Prepaid Insurance 2 300 00Land 20 000 00Office Equipment 1 800 00Accumulated Depreciation 50 00Accounts Payable 900 00Wages Payable 250 00Unearned Rent 240 00Chris Clark, Capital 28 205 00
29 645 00 29 645 00
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
Working Capital = $7,845 – $1,390
Working Capital =
Current Assets – Current
Liabilities
Working Capital = $6,455
Current Ratio =
Current Assets ÷ Current
Liabilities
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
Current Ratio = $7,845 ÷ $1,390
Current Ratio = 5.6
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
This ratio implies that NetSolutions is able to pay
its current liabilities.
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
Current ratio = $7,845 ÷ $1,390
Current ratio =
Current Assets ÷ Current
Liabilities
Current ratio = 5.6
Financial Analysis for Financial Analysis for NetSolutionsNetSolutions
NetSolutions can use the current ratio to make comparisons across
companies and with industry averages.
The End
Chapter 4Chapter 4
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