Learning objectives of current ratio, Accounting Basics

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Q. Learning objectives of current ratio?

- Analyze the transactions by examining source documents.

- Journalize the transactions in the journal.

- Post the journal entries to the accounts in the ledger.

- Prepare a trial balance of the accounts as well as complete the work sheet.

- Prepare a financial statements.

- Journalize as well as post adjusting entries.

- Journalize as well as post closing entries.

- Prepare the post-closing trial balance.

- The work sheet is a columnar sheet of paper on which accountants summarize information essential to make the adjusting and closing entries and to prepare the financial statements.

- Work sheets may perhaps vary in format. The work sheet exemplify in the section has 12 columns two each for adjustments, adjusted trial balance, income statement, statement of retained earnings, trial balance and balance sheet.

- The information essential to prepare the income statement is in the Income Statement columns of the work sheet. Net income for the period is the amount essential to balance the two Income Statement columns in the work sheet.

- The information essential to prepare the statement of retained earnings is in the Statement of Retained Earnings columns of the work sheet. An ending Retained Earnings balance is carried forward to the balance sheet.

- The information essential to prepare the balance sheet is in the Balance Sheet columns of the work sheet.

- As explained in section 3 adjusting entries are needed to bring the accounts to their proper balances before preparing the financial statements. Closing entries are necessary to decrease the balances of expense, revenue and Dividends accounts to zero thus they are ready to receive data for the next accounting period.

- Revenue accounts are closed by debiting them as well as crediting the Income Summary account.

- Expense accounts are closed by crediting them as well as debiting the Income Summary account.

- The balance in the Income Summary account represents the net income or else net loss for the period.

- To close up the Income Summary account the balance is transferred to the Retained Earnings account.

- To close the Dividends account, the balance is transferred to the Retained Earnings account.

- Only the balance sheet accounts have balances as well as appear on the post-closing trial balance.

- All expense, revenue and Dividends accounts have zero balances and aren't included in the post-closing trial balance.

- Manual systems as well as computerized systems perform the same accounting functions.

- The ease of accounting with a PC has optimistic even small companies to convert to computerized systems.

- A classified balance sheet subdivides the main categories on the balance sheet. For example a classified balance sheet subdivides assets into current assets long-term investments plant, property and equipment and intangible assets. It subdivides liabilities into long-term liabilities and current liabilities. Later section show more accounts in the stockholders' equity section however the subdivisions remain basically the same.

- The current ratio gives a little indication of the short-term debt-paying ability of a company.

- To get the current ratio divide current assets by current liabilities.


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