Learning Objectives
Power Notes
Completing the Accounting Cycle
1,Work Sheet
2,Financial Statements
3,Adjusting and Closing Entries
4,Accounting Cycle
5,Fiscal Year
6,Financial Analysis and Interpretation
Chapter F4
C4
The Work Sheet
Financial Statements
The Closing Process
Post-Closing Trial Balance
Accounting Cycles
Working Capital and
Current Ratio
Slide # Power Note Topics
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Note,To select a topic,type the slide # and press Enter.
Power NotesChapter F4
Completing the Accounting Cycle
The Work Sheet
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
Prepared from general ledger,
Accounts are listed in order,A,L,OE,R,E
The Work Sheet
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 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
Trial Balance Adjustments Adj,Trial Balance
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12 Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19 Accumulated Depr,0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53 Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56 Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
NetSolutions - Work Sheet - Two Months Ended 12/31/02
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 32,600 2,260 2,260 43,400 43,400
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 10,000 10,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 15,000 15,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
32,600 32,600 2,260 2,260 33,400 33,400
NetSolutions - Work Sheet - Two Months Ended 12/31/99
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
NetSolutions - Work Sheet - Two Months Ended 12/31/02
11 Cash 2,065 2,065
12 Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land20,000 20,000
18 Office Equipment 1,800 1,800
19 Accumulated Depr,0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53 Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a)1,240 2,040
56 Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj,Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15Prepaid Insurance 2,300 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,50 50
21Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Revenue 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc,Expense 455 455
43,400 43,400 9,755 16,960 33,645 26,440
Net Income 7,205 7,205
16,960 16,960 33,645 33,645
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj,Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15Prepaid Insurance 2,300 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,50 50
21Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Revenue 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc,Expense 455 455
43,400 43,400 9,755 16,960 33,645 26,440
Net Income 7,205 7,205
16,960 16,960 33,645 33,645
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj,Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15Prepaid Insurance 2,300 2,300
17 Land 10,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,50 50
21Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Revenue 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc,Expense 455 455
43,400 43,400 9,755 16,960 33,645 26,440
Net Income 7,205 7,205
16,960 16,960 33,645 33,645
NetSolutions - Work Sheet - Two Months Ended 12/31/02
NetSolutions
Income Statement
For Two Months Ended December 31,2002
Fees earned $16,840
Rent revenue 120
Total revenues $16,960
Expenses:
Wages expense $ 4,525
Supplies expense 2,040
Rent expense 1,600
Utilities expense 985
Insurance expense 100
Depreciation expense 50
Miscellaneous expense 455
Total expenses 9,755
Net income $ 7,205
NetSolutions
Retained Earnings Statement
For Two Months Ended December 31,2002
Net income for November and December $7,205
Less dividends 4,000
Retained earnings,December 31,2002 $3,205
NetSolutions
Balance Sheet
December 31,2002
ASSETS
Current assets:
Cash $ 2,065
Accounts receivable 2,720
Supplies 760
Prepaid insurance 2,300
Total current assets $ 7,845
Property,plant,and equipment:
Land $20,000
Office equipment 1,800
Less accum,depr,(50)
Total property,plant,
and equipment 21,750
Total assets $29,595
NetSolutions
Balance Sheet
December 31,2002
LIABILITIES
Current liabilities:
Accounts payable $ 900
Wages payable 250
Unearned rent 240
Total liabilities $ 1,390
STOCKHOLDERS’ EQUITY
Capital stock $25,000
Retained earnings 3,205
Total stockholders’ equity 28,205
Total liabilities and
stockholders’ equity $29,595
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
Retained Earnings
Bal,0
Dividends
Bal,4,000
Income Summary
Note,The balances
shown are adjusted
balances before closing,
The following sequence
demonstrates the closing
process.
The Closing Process
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
16,840
120
Income Summary
16,960
Retained Earnings Close Revenues
Bal,0
Dividends
Bal,4,000
Total
Revenues
The Closing Process
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
4,525
1,600
50
985
2,040
100
455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
16,840
120
Income Summary
16,9609,755
Retained Earnings Close Revenues
Bal,0
Dividends
Bal,4,000
Close Expenses
Total
Expenses
Total
Revenues
The Closing Process
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
4,525
1,600
50
985
2,040
100
455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
16,840
120
Income Summary
16,9609,755
Retained Earnings Close Revenues
Bal,0
Dividends
Bal,4,000
Close Expenses
The Closing Process
7,205
7,205
Close Income SummaryNet Income
Closed
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
4,525
1,600
50
985
2,040
100
455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
16,840
120
Income Summary
16,9609,755
Retained Earnings Close Revenues
Bal,0
Dividends
Bal,4,000
Close Expenses
The Closing Process
7,205
7,205
Close Income SummaryNet Income
4,000
4,000
Close Dividends
Dividends
Closed
Closed
Wages Expense
Rent Expense
Depreciation Expense
Utilities Expense
Supplies Expense
Insurance Expense
Miscellaneous Expense
Fees Earned
Rent Revenue
Income Summary
Retained Earnings
Bal,0
Dividends
Net Income
Dividends
Bal,3,205
All temporary accounts
now have zero balances
and are ready for the
next accounting period.
7,205
4,000
The Closing Process
NetSolutions
Post-Closing Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum,Depreciation 50
21 Accounts Payable 900
22 Wages Payable 250
23 Unearned Rent 240
31 Capital Stock 25,000
32 Retained Earnings 3,205
29,645 29,645
Assets
NetSolutions
Post-Closing Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum,Depreciation 50
21 Accounts Payable 900
22 Wages Payable 250
23 Unearned Rent 240
31 Capital Stock 25,000
32 Retained Earnings 3,205
29,645 29,645
Liabilities
NetSolutions
Post-Closing Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum,Depreciation 50
21 Accounts Payable 900
22 Wages Payable 250
23 Unearned Rent 240
31 Capital Stock 25,000
32 Retained Earnings 3,205
29,645 29,645
Stockholders’
Equity
Manual Accounting Cycle
1,Transactions are analyzed
and recorded in journal.
Documents Journal
Manual Accounting Cycle
1,Transactions are analyzed
and recorded in journal.
Documents Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
Manual Accounting Cycle
1,Transactions are analyzed
and recorded in journal.
Documents Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
3,Trial balance is prepared,
adjustment data is organized,
work sheet is completed,Work Sheet
Manual Accounting Cycle
1,Transactions are analyzed
and recorded in journal.
Documents Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
3,Trial balance is prepared,
adjustment data is organized,
work sheet is completed,Work Sheet
4,Financial statements are
prepared and distributed.
Financial Statements
IS SOE BS SCF
5,Adjusting entries are
journalized and posted
to ledger,Journal
Ledger
Manual Accounting Cycle
5,Adjusting entries are
journalized and posted
to ledger,Journal
6,Closing entries are
journalized and posted
to ledger,Journal
Ledger
Ledger
Manual Accounting Cycle
5,Adjusting entries are
journalized and posted
to ledger.
7,Post-closing trial balance
is prepared.
Journal
6,Closing entries are
journalized and posted
to ledger,Journal
Post-closing
Trial Balance
Assets
Liabilities
Owner’s Equity
Ledger
Ledger
Manual Accounting Cycle
5,Adjusting entries are
journalized and posted
to ledger.
7,Post-closing trial balance
is prepared.
Journal
6,Closing entries are
journalized and posted
to ledger,Journal
Post-closing
Trial Balance
8,Reports are analyzed and
interpreted for decision-
making purposes.
Assets
Liabilities
Owner’s Equity
Ledger
Ledger
Manual Accounting Cycle
Computer Accounting Cycle
1,Transactions are analyzed
and entered in the computer.
Documents
Computer
Computer Accounting Cycle
1,Transactions are analyzed
and entered in the computer.
Documents
Computer
2,Preliminary reports are
analyzed,adjustments are
prepared and entered in the
computer,ComputerReports Computer
Computer Accounting Cycle
1,Transactions are analyzed
and entered in the computer.
Documents
Computer
2,Preliminary reports are
analyzed,adjustments are
prepared and entered in the
computer,ComputerReports
3,Financial statements are
printed and distributed.
Financial Statements
IS SOE BS SCF
Computer
Computer Accounting Cycle
1,Transactions are analyzed
and entered in the computer.
Documents
Computer
2,Preliminary reports are
analyzed,adjustments are
prepared and entered in the
computer,ComputerReports
3,Financial statements are
printed and distributed.
Financial Statements
IS SOE BS SCF
Computer
4,Reports are analyzed and
interpreted for decision-
making purposes.
Solvency Analysis
Solvency is the ability of a business to meet its
financial obligations (debts) as they are due.
Solvency analysis focuses on the ability of a
business to pay or otherwise satisfy its current
and noncurrent liabilities.
This ability is normally assessed by examining
balance sheet relationships.
Solvency Measures — The Short-Term Creditor
Current assets $550,000 $533,000
Current liabilities 210,000 243,000
Working Capital and Current Ratio
2001 2002
Solvency Measures — The Short-Term Creditor
Working Capital and Current Ratio
Use,To indicate the ability to meet
currently maturing obligations.
2001 2002
Current assets $550,000 $533,000
Current liabilities 210,000 243,000
Working capital $340,000 $290,000
Solvency Measures — The Short-Term Creditor
Current assets $550,000 $533,000
Current liabilities 210,000 243,000
Working capital $340,000 $290,000
Current ratio 2.6 to 1 2.2 to 1
Working Capital and Current Ratio
Use,To indicate the ability to meet
currently maturing obligations.
2001 2002
Divide
current
assets by
current
liabilities
Working Capital and Current Ratio
Working Capital (WC)
Objective,Analyze and interpret the financial solvency of
a business by computing the working capital and the
current ratio.
Current Assets minus
Current Liabilities
NetSolutions
Example
WC = $7,845 - $1,390 = $6,455
Current Ratio (CR)
Current Liabilities
Current Assets
CR = $7,845 / $1,390 = 5.6
Note,To see the topic slide,type 2 and press Enter.
This is the last slide in Chapter F4,
Power Notes
Completing the Accounting Cycle
Chapter F4
Power Notes
Completing the Accounting Cycle
1,Work Sheet
2,Financial Statements
3,Adjusting and Closing Entries
4,Accounting Cycle
5,Fiscal Year
6,Financial Analysis and Interpretation
Chapter F4
C4
The Work Sheet
Financial Statements
The Closing Process
Post-Closing Trial Balance
Accounting Cycles
Working Capital and
Current Ratio
Slide # Power Note Topics
3
18
22
28
31
43
Note,To select a topic,type the slide # and press Enter.
Power NotesChapter F4
Completing the Accounting Cycle
The Work Sheet
Trial Balance
Accounts Dr Cr Dr Cr Dr Cr
Adjustments Adjusted TB
Prepared from general ledger,
Accounts are listed in order,A,L,OE,R,E
The Work Sheet
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 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
Trial Balance Adjustments Adj,Trial Balance
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12 Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19 Accumulated Depr,0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53 Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56 Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
NetSolutions - Work Sheet - Two Months Ended 12/31/02
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 32,600 2,260 2,260 43,400 43,400
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 10,000 10,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 15,000 15,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
32,600 32,600 2,260 2,260 33,400 33,400
NetSolutions - Work Sheet - Two Months Ended 12/31/99
11 Cash 2,065 2,065
12Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15Prepaid Insurance 2,400 (b) 100 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,0 (f) 50 50
21Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a) 1,240 2,040
56Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
NetSolutions - Work Sheet - Two Months Ended 12/31/02
11 Cash 2,065 2,065
12 Accounts Receivable 2,220 (e) 500 2,720
14 Supplies 2,000 (a) 1,240 760
15 Prepaid Insurance 2,400 (b) 100 2,300
17 Land20,000 20,000
18 Office Equipment 1,800 1,800
19 Accumulated Depr,0 (f) 50 50
21 Accounts Payable 900 900
22 Wages Payable 0 (d) 250 250
23 Unearned Rent 360 (c) 120 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,340 (e) 500 16,840
42 Rent Revenue 0 (c) 120 120
51 Wages Expense 4,275 (d) 250 4,525
52 Rent Expense 1,600 1,600
53 Depreciation Expense 0 (f) 50 50
54 Utilities Expense 985 985
55 Supplies Expense 800 (a)1,240 2,040
56 Insurance Expense 0 (b) 100 100
59 Misc,Expense 455 455
42,600 42,600 2,260 2,260 43,400 43,400
Trial Balance Adjustments Adj,Trial Balance
Account Debit Credit Debit Credit Debit Credit
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj,Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15Prepaid Insurance 2,300 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,50 50
21Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Revenue 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc,Expense 455 455
43,400 43,400 9,755 16,960 33,645 26,440
Net Income 7,205 7,205
16,960 16,960 33,645 33,645
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj,Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15Prepaid Insurance 2,300 2,300
17 Land 20,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,50 50
21Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Revenue 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc,Expense 455 455
43,400 43,400 9,755 16,960 33,645 26,440
Net Income 7,205 7,205
16,960 16,960 33,645 33,645
NetSolutions - Work Sheet - Two Months Ended 12/31/02
Adj,Trial Balance Income Statement Balance Sheet
Account Debit Credit Debit Credit Debit Credit
11 Cash 2,065 2,065
12Accounts Receivable 2,720 2,720
14 Supplies 760 760
15Prepaid Insurance 2,300 2,300
17 Land 10,000 20,000
18 Office Equipment 1,800 1,800
19Accumulated Depr,50 50
21Accounts Payable 900 900
22 Wages Payable 250 250
23 Unearned Rent 240 240
31 Capital Stock 25,000 25,000
33 Dividends 4,000 4,000
41 Fees Earned 16,840 16,840
42 Rent Revenue 120 120
51 Wages Expense 4,525 4,525
52 Rent Expense 1,600 1,600
53Depreciation Expense 50 50
54 Utilities Expense 985 985
55 Supplies Expense 2,040 2,040
56Insurance Expense 100 100
59 Misc,Expense 455 455
43,400 43,400 9,755 16,960 33,645 26,440
Net Income 7,205 7,205
16,960 16,960 33,645 33,645
NetSolutions - Work Sheet - Two Months Ended 12/31/02
NetSolutions
Income Statement
For Two Months Ended December 31,2002
Fees earned $16,840
Rent revenue 120
Total revenues $16,960
Expenses:
Wages expense $ 4,525
Supplies expense 2,040
Rent expense 1,600
Utilities expense 985
Insurance expense 100
Depreciation expense 50
Miscellaneous expense 455
Total expenses 9,755
Net income $ 7,205
NetSolutions
Retained Earnings Statement
For Two Months Ended December 31,2002
Net income for November and December $7,205
Less dividends 4,000
Retained earnings,December 31,2002 $3,205
NetSolutions
Balance Sheet
December 31,2002
ASSETS
Current assets:
Cash $ 2,065
Accounts receivable 2,720
Supplies 760
Prepaid insurance 2,300
Total current assets $ 7,845
Property,plant,and equipment:
Land $20,000
Office equipment 1,800
Less accum,depr,(50)
Total property,plant,
and equipment 21,750
Total assets $29,595
NetSolutions
Balance Sheet
December 31,2002
LIABILITIES
Current liabilities:
Accounts payable $ 900
Wages payable 250
Unearned rent 240
Total liabilities $ 1,390
STOCKHOLDERS’ EQUITY
Capital stock $25,000
Retained earnings 3,205
Total stockholders’ equity 28,205
Total liabilities and
stockholders’ equity $29,595
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
Retained Earnings
Bal,0
Dividends
Bal,4,000
Income Summary
Note,The balances
shown are adjusted
balances before closing,
The following sequence
demonstrates the closing
process.
The Closing Process
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
16,840
120
Income Summary
16,960
Retained Earnings Close Revenues
Bal,0
Dividends
Bal,4,000
Total
Revenues
The Closing Process
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
4,525
1,600
50
985
2,040
100
455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
16,840
120
Income Summary
16,9609,755
Retained Earnings Close Revenues
Bal,0
Dividends
Bal,4,000
Close Expenses
Total
Expenses
Total
Revenues
The Closing Process
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
4,525
1,600
50
985
2,040
100
455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
16,840
120
Income Summary
16,9609,755
Retained Earnings Close Revenues
Bal,0
Dividends
Bal,4,000
Close Expenses
The Closing Process
7,205
7,205
Close Income SummaryNet Income
Closed
Wages Expense
Bal,4,525
Rent Expense
Bal,1,600
Depreciation Expense
Bal,50
Utilities Expense
Bal,985
Supplies Expense
Bal,2,040
Insurance Expense
Bal,100
Miscellaneous Expense
Bal,455
4,525
1,600
50
985
2,040
100
455
Fees Earned
Bal,16,840
Rent Revenue
Bal,120
16,840
120
Income Summary
16,9609,755
Retained Earnings Close Revenues
Bal,0
Dividends
Bal,4,000
Close Expenses
The Closing Process
7,205
7,205
Close Income SummaryNet Income
4,000
4,000
Close Dividends
Dividends
Closed
Closed
Wages Expense
Rent Expense
Depreciation Expense
Utilities Expense
Supplies Expense
Insurance Expense
Miscellaneous Expense
Fees Earned
Rent Revenue
Income Summary
Retained Earnings
Bal,0
Dividends
Net Income
Dividends
Bal,3,205
All temporary accounts
now have zero balances
and are ready for the
next accounting period.
7,205
4,000
The Closing Process
NetSolutions
Post-Closing Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum,Depreciation 50
21 Accounts Payable 900
22 Wages Payable 250
23 Unearned Rent 240
31 Capital Stock 25,000
32 Retained Earnings 3,205
29,645 29,645
Assets
NetSolutions
Post-Closing Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum,Depreciation 50
21 Accounts Payable 900
22 Wages Payable 250
23 Unearned Rent 240
31 Capital Stock 25,000
32 Retained Earnings 3,205
29,645 29,645
Liabilities
NetSolutions
Post-Closing Trial Balance
December 31,2002
11 Cash 2,065
12 Accounts Receivable 2,720
14 Supplies 760
15 Prepaid Insurance 2,300
17 Land 20,000
18 Office Equipment 1,800
19 Accum,Depreciation 50
21 Accounts Payable 900
22 Wages Payable 250
23 Unearned Rent 240
31 Capital Stock 25,000
32 Retained Earnings 3,205
29,645 29,645
Stockholders’
Equity
Manual Accounting Cycle
1,Transactions are analyzed
and recorded in journal.
Documents Journal
Manual Accounting Cycle
1,Transactions are analyzed
and recorded in journal.
Documents Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
Manual Accounting Cycle
1,Transactions are analyzed
and recorded in journal.
Documents Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
3,Trial balance is prepared,
adjustment data is organized,
work sheet is completed,Work Sheet
Manual Accounting Cycle
1,Transactions are analyzed
and recorded in journal.
Documents Journal
2,Transactions are posted
from journal to ledger.
Journal Ledger
3,Trial balance is prepared,
adjustment data is organized,
work sheet is completed,Work Sheet
4,Financial statements are
prepared and distributed.
Financial Statements
IS SOE BS SCF
5,Adjusting entries are
journalized and posted
to ledger,Journal
Ledger
Manual Accounting Cycle
5,Adjusting entries are
journalized and posted
to ledger,Journal
6,Closing entries are
journalized and posted
to ledger,Journal
Ledger
Ledger
Manual Accounting Cycle
5,Adjusting entries are
journalized and posted
to ledger.
7,Post-closing trial balance
is prepared.
Journal
6,Closing entries are
journalized and posted
to ledger,Journal
Post-closing
Trial Balance
Assets
Liabilities
Owner’s Equity
Ledger
Ledger
Manual Accounting Cycle
5,Adjusting entries are
journalized and posted
to ledger.
7,Post-closing trial balance
is prepared.
Journal
6,Closing entries are
journalized and posted
to ledger,Journal
Post-closing
Trial Balance
8,Reports are analyzed and
interpreted for decision-
making purposes.
Assets
Liabilities
Owner’s Equity
Ledger
Ledger
Manual Accounting Cycle
Computer Accounting Cycle
1,Transactions are analyzed
and entered in the computer.
Documents
Computer
Computer Accounting Cycle
1,Transactions are analyzed
and entered in the computer.
Documents
Computer
2,Preliminary reports are
analyzed,adjustments are
prepared and entered in the
computer,ComputerReports Computer
Computer Accounting Cycle
1,Transactions are analyzed
and entered in the computer.
Documents
Computer
2,Preliminary reports are
analyzed,adjustments are
prepared and entered in the
computer,ComputerReports
3,Financial statements are
printed and distributed.
Financial Statements
IS SOE BS SCF
Computer
Computer Accounting Cycle
1,Transactions are analyzed
and entered in the computer.
Documents
Computer
2,Preliminary reports are
analyzed,adjustments are
prepared and entered in the
computer,ComputerReports
3,Financial statements are
printed and distributed.
Financial Statements
IS SOE BS SCF
Computer
4,Reports are analyzed and
interpreted for decision-
making purposes.
Solvency Analysis
Solvency is the ability of a business to meet its
financial obligations (debts) as they are due.
Solvency analysis focuses on the ability of a
business to pay or otherwise satisfy its current
and noncurrent liabilities.
This ability is normally assessed by examining
balance sheet relationships.
Solvency Measures — The Short-Term Creditor
Current assets $550,000 $533,000
Current liabilities 210,000 243,000
Working Capital and Current Ratio
2001 2002
Solvency Measures — The Short-Term Creditor
Working Capital and Current Ratio
Use,To indicate the ability to meet
currently maturing obligations.
2001 2002
Current assets $550,000 $533,000
Current liabilities 210,000 243,000
Working capital $340,000 $290,000
Solvency Measures — The Short-Term Creditor
Current assets $550,000 $533,000
Current liabilities 210,000 243,000
Working capital $340,000 $290,000
Current ratio 2.6 to 1 2.2 to 1
Working Capital and Current Ratio
Use,To indicate the ability to meet
currently maturing obligations.
2001 2002
Divide
current
assets by
current
liabilities
Working Capital and Current Ratio
Working Capital (WC)
Objective,Analyze and interpret the financial solvency of
a business by computing the working capital and the
current ratio.
Current Assets minus
Current Liabilities
NetSolutions
Example
WC = $7,845 - $1,390 = $6,455
Current Ratio (CR)
Current Liabilities
Current Assets
CR = $7,845 / $1,390 = 5.6
Note,To see the topic slide,type 2 and press Enter.
This is the last slide in Chapter F4,
Power Notes
Completing the Accounting Cycle
Chapter F4
