Ayah Eca

Working capital is vital to a business. They have to have funds available to pay their day to day bills, wages and so on. The working capital is made up of the current assets net of the current liabilities . It is very important to a company to manage its working capital carefully. This is particularly true where there is a substantial time lag between making the product and receiving the money for it. In this situation the company has paid out all the costs associated with making the product (labour, raw materials and so on) but not yet got any money for it. They must therefore ensure they have enough cash to do this. The way working capital moves around the business is modelled by the working capital cycle . This shows the cash coming into the business, what happens to it while the business has it and then where it goes. A simple working capital cycle may look something like:- Between each stage of this working capital cycle there is a time delay...

As we know a firm has to have sufficient liquidity. In other words they have to be able to meet their day to day payments. It is no good having your money tied up or invested so that you haven't enough to meet your bills! Current assets and liabilities are an important part of this liquidity and so to measure the firms liquidity situation we can work out a ratio. It is called the CURRENT RATIO . The current ratio is worked out by dividing the current assets by the current liabilities:- CURRENT RATIO = Current assets Current liabilities This figure should always be above 1 or the firm does not have enough assets to meet its liabilities and is therefore technically insolvent. However, a figure close to 1 would be a little close for the firm as they would only just be able to meet their liabi...

The Creditors' Ledger The Debtors' Ledger The Cash Book The General Ledger All of the ledgers contain "accounts". These "accounts", just like bank accounts are either in credit or in debt. For Pepe's Pizza Parlour, when Pepe has money in his bank account then the bank owes Pepe money. In this case Pepe is the bank's creditor and the bank is his debtor. In fact Pepe is overdrawn and has an arranged overdraft. Pepe owes the bank money. In this case Pepe is the bank's debtor and the bank is Pepe's creditor. Every party with which Pepe's Pizza Parlour has a transaction has an "account" with the business i.e. people who Pepe buys goods from and people who Pepe sells goods to. In addition there are accounts to represent how much equipment the business owns, expense accounts to cover the day to day exp...

The balance sheet is one of the financial statements that limited companies and PLCs produce every year for their shareholders. It is like a financial snapshot of the company's financial situation at that moment in time. It is worked out at the company's year end, giving the company's assets and liabilities at that moment. It is given in two halves - the top half shows where the money is currently being used in the business (the net assets), and the bottom half shows where that money came from (the capital employed). The value of the two halves must be the same - capital employed = net assets, hence the term balance sheet. The money invested in the business may have been used to buy long-term assets or short-term assets. The long-term assets are known as fixed assets, and help the firm to produce. Examples would be machinery, equipment, computers and so on, none of which actually get used up in the production process. The short-term assets are known as current assets - a...

The balance sheet is one of the financial statements that limited companies and PLCs produce every year for their shareholders. It is like a financial snapshot of the company's financial situation at that moment in time. It is worked out at the company's year end, giving the company's assets and liabilities at that moment. It is given in two halves - the top half shows where the money is currently being used in the business (the net assets), and the bottom half shows where that money came from (the capital employed). The value of the two halves must be the same - capital employed = net assets, hence the term balance sheet. The money invested in the business may have been used to buy long-term assets or short-term assets. The long-term assets are known as fixed assets, and help the firm to produce. Examples would be machinery, equipment, computers and so on, none of which actually get used up in the production process. The short-term assets are known as current assets - a...

by Ken Delaney-Moore, Sheffield Hallam University Aims: This worksheet deals with: The accruals 'concept' The effect of prepayments on expense accounts. The effect of accruals on expense accounts. After having completed the worksheet you should be able to explain both of these points. When you are done, please fill-in the on-line evaluation form in order for us to monitor the quality of the materials we provide for you. Tell us what we're doing right and wrong. It takes very little time, and your opinions are valued - thank you. The accruals concept This is a rule, like the 'business entity concept' and 'dual aspect concept'. It means that when we calculate the profit for (say) 'Year 1', we should deduct expens...