Investors judge a company by using various methods to know whether a company has adequate working capital. In this regard, current ratio is more useful than the net working capital. Current ratio (CR) is calculated by dividing current asset (CA) by current liabilities (CL). CR = CA / CL What is Current Assets and Current Liabilities To classify a particular asset as … [Read more...] about Why and How to calculate current ratio
Beginners guide to financial statements
Income statement or Profit & loss account in financial statements
To present financial position for a period to stakeholders, companies prepare financial statements. It has four main parts: the balance sheet, income statement, cash flow and retained earnings / shareholders equity. In this article, we will be looking at the income statement: what it is, how its prepared and what is its purpose. Income statement is the first thing … [Read more...] about Income statement or Profit & loss account in financial statements
How cost of goods sold or COGS is calculated
Cost of goods sold is shown in the income statement of a company which is into manufacturing, wholesaling, retailing or into similar kind of business. Cost of goods sold or COGS is calculated by taking all direct expenses that a company has incurred to manufacture its product. After calculating COGS, you need to offset it against revenue to find out gross profit. In this … [Read more...] about How cost of goods sold or COGS is calculated
What is Shareholders’ equity on the balance sheet
A company’s balance sheet has three major sections, assets, liabilities and stockholders’ equity. Liability represents the total debt of the company and owner's capital represents shareholders’ ownership. Liabilities and owner's capital are the two major sources of financing the assets of a company. Total asset must equal to the total liabilities and stockholders equity in … [Read more...] about What is Shareholders’ equity on the balance sheet
Accounts payable on the balance sheet
Accounts payable is the amount that the company owes to its creditors or outsiders from whom it has brought goods or services. Total amount of accounts payable as on the date of balance sheet is classified under the head current liabilities. It arises because of the time lag between receipt of goods, supplies or services and the payment of them. This time lag is generally … [Read more...] about Accounts payable on the balance sheet
Beginner’s Guide to Understanding Assets on the Balance Sheet
On the balance sheet you have three major components: assets, liabilities and owner's equity. In this article, we will understand the term asset on the balance sheet and its components. An asset is a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to the company. In simplified terms, Assets are simply … [Read more...] about Beginner’s Guide to Understanding Assets on the Balance Sheet
How to calculate Working capital of an organisation
Working capital is the difference between company’s total current asset and the total current liabilities. In simplified terms, It's the amount of current asset that is left out if all current liabilities are paid. Working Capital = Current Assets - Current Liabilities Bankers, financial institutions and other creditors compute working capital to know the short-term … [Read more...] about How to calculate Working capital of an organisation
Fixed assets on the company’s balance sheet
Asset held with the intention of being used for the purpose of producing goods or providing services and is not held for sale in the normal course of business is known as fixed assets. Fixed assets are shown on the balance sheet at its historical cost less accumulated depreciation. Cost of fixed assets Cost of fixed asset is the purchase price and any thing that is … [Read more...] about Fixed assets on the company’s balance sheet
What is Accounts receivable on the balance sheet
Accounts receivable for a company means the total money that is due from customers to which goods or services are sold on credit. If a company has sold goods or services to 100 customers in credit, then the total amount due to be received as on the balance sheet date is shown under the head accounts receivable on the balance sheet. Accounts receivable is also referred as … [Read more...] about What is Accounts receivable on the balance sheet
Cash vs Accrual basis of accounting – which on is better
Financial accounting is a major source of information for success of business. Most important aspect of financial accounting system is referred to as recognition, it's the decision about when to record revenue and expense transactions. We have two type of accounting used to record transactions, cash and accrual. In this article, we will be discussing both cash and accrual … [Read more...] about Cash vs Accrual basis of accounting – which on is better