USES OF SUSPENSE ACCOUNT Suspense account can be used for the following valid reasons : 1. It’s an account for bookkeeper to use which can be posted any difference on the trial balance pending the discovery of errors; the errors when found are corrected by debiting and crediting the suspense account. Ultimately, the suspense account is nil … Read more
The Proprietary Ratio represents the proportion of Proprietors’ Equity to Total Assets. PROPRIETARY RATIO: FORMULA Shareholders’ Equity/Total Assets ( Current Assets+ Fixed Assets) MEASURE WHAT A test of Credit Strength. Is also a test of capitalization and a high or low ratio may indicate low or high earnings respectively per share. SCORE/VALUE A higher … Read more
It’s important to understand the basic difference between Capital and Revenue expenditure. Append below, in tabulated form, the characteristic and some salient points to understand the difference: CAPITAL EXPENDITURE Outlay resulting in the increase or acquisition of an asset or INCREASE in the earning capacity of a business REVENUE EXPENDITURE Outlay as is … Read more
It’s important to understand the basic difference between the cash basis accounting method and the accrual method. Append below, in tabulated form, the characteristic of both methods and some salient points to understand the importance of the different methods. CASH ACCOUNTING METHOD 1. All financial transactions events are based on cash basis. This … Read more
PETTY CASH AND THE IMPREST CASH FLOAT SYSTEM Petty Cash Many business normally keeps a small amount of money to meet some small cash disbursements like payment of postage, medical claims, staff traveling claims. As the disbursements are for petty item hence the name petty cash Petty Cash Imprest System Salient features: Under this Imprest … Read more
TURNOVER OF FIXED ASSETS: FORMULA Net Sales / Fixed Assets MEASURE WHAT Measure the efficiency of the usage of fixed assets in generating sales SCORE/VALUE Varies. The higher is the more effective SALIENT POINTS TO NOTE Comparing similar periods and similar industry statistics determines measures of efficiencies by which the assets in this case, fixed … Read more
TURNOVER OF INVENTORY: FORMULA Net Sales / Inventory MEASURE WHAT Measure the efficiency of the usage of inventory in generating sales SCORE/VALUE Varies. The higher is the more effective SALIENT POINTS TO NOTE Comparing similar periods and similar industry statistics determines measures of efficiencies by which the assets in this inventory are employed in the … Read more
TURNOVER OF ACCOUNTS RECEIVABLE : FORMULA Net Sales / Accounts Receivable MEASURE WHAT Measure the efficiency or otherwise of the credit and collection policies of the enterprise SCORE/VALUE Varies. The higher is the more effective SALIENT POINTS TO NOTE Comparing similar periods and similar industry statistics determines measures of efficiencies by which the assets in … Read more
Continued from my last article, we now look at the financial ratio for assessing the Activity of assets deployed by the company. Essentially, the Activity ratios are able to measure the efficiency of managing or using of assets like:- total assets. accounts receivable, inventory, accounts payable, and TOTAL ASSETS TURNOVER: FORMULA … Read more
DIVIDEND YIELD: FORMULA Dividends per share / Market price per share MEASURE WHAT Share rate of dividend to shareholders based on market price SCORE/VALUE Higher ratio is better. Depends on performance of the company itself & objectives of Management as studies show higher yields can increase share prices SALIENT POINTS TO NOTE It is the cash … Read more