CASH AND RECEIVABLES

Account and budget level

III

LEARNING GUIDE
Unit of Competence Balance CASH
Holding
Module Title: Balance CASH
Holding
LG Code: CDS CPM3 M016 0312

TTLM Code: BUF ACB3 10 220

HU, ACCOUNTING and FINANCE DEPARTMENT 1

 CASH AND RECEIVABLES

LO 3. Reconciling takings

3.1 Identify Cash and non-cash documents

compared with cash and cash non-
Information sheet 8
transaction

3.1,1, 1Introduction
The Bank Statement
Once a month, the bank sends each depositor, a statement of the deposits received and the
checks paid. The bank statement shows the balance at the beginning of the period, checks
withdrawn and other debits (deductions by the bank) made by the bank on the depositor’s
bank account, deposits and other credits (additions by the bank), and the balance at the
end of the period.

Bank Reconciliation
Dear Learners, since the bank and depositor maintain independent records of the
depositor’s checking account, it may seem that the balance as per the two will always
agree, but they are not likely to be equal on any specific date, hence the process of
bringing the two balances to one is called bank reconciliation.
The lack of agreement between the two balances is due to:
 Time lag of one party in recording the transaction.

Hu, Accounting And Finance Department 2

 CASH AND RECEIVABLES

 Error by either party in recording the transaction.

Some checks may have been written and entered in the firm’s journal but they may not
have been paid by the bank and charged to the depositor's account before the end of the
month .A deposit recorded in the firm’s journal may have reached the bank too late to be
included in the bank statement for the current month. The bank might have deducted
service charges or other items that have not yet been entered on the depositors’ record.

Bank reconciliation procedures

A company's general ledger account cash contains a record of transactions (checks
written, receipts from customers, etc.) that involve its checking account. The bank also
creates a record of the company's checking account when it processes the company's
checks, deposits, service charges, and other items. Soon after the ends of each month, the
bank usually mails a bank statement to the company. The bank statement lists the
activity in the bank account during the recent month as well as the balance in the bank
account. When the company receives its bank statement, the company should verify that
the amounts on the bank statement are consistent or compatible with the amounts in the
company's cash account in its general

Steps in Reconciliation Process

Step 1. Adjusting the Balance per Bank
The bank reconciliation process is demonstrated by several steps. The first step is to
adjust the balance on the bank statement to the true, adjusted, or corrected balance. The
items necessary for this step are listed in the following schedule:

Step 1. Balance per Bank Statement on Aug 31. 2006

Adjustments:

Add: Deposits in transit

Deduct: Outstanding checks

Add or Deduct: Bank errors

HU, ACCOUNTING and FINANCE DEPARTMENT 3

 CASH AND RECEIVABLES

Adjusted/Corrected Balance per Bank

Deposits in transit are deposits already sent to the bank and recorded by the company,
but are not yet recorded by the bank. For example, a retail store deposits its cash receipts
of August 31 into the bank's night depository at 10:00 p.m. on August 31. The bank will
process this deposit on the morning of September 1. This is a deposit in transit as of
August 31 (the bank statement date).
Since deposits in transit are already included in the company's cash account, there is no
need to adjust the company's records. However, deposits in transit are not yet appeared on
bank statement. Therefore, they need to be listed on the bank reconciliation as an increase
to the balance per bank statement in order to report the true amount of cash. A helpful
rule of thumb is "put it where it isn't." A deposit in transit is on the company's book, but it
is not on the bank statement. Put it where it is not: as an adjustment to the balance on the
bank statement.
Outstanding checks are checks that have been written and recorded in the company's
cash account, but have not yet cleared the bank. Checks written during the last few days
of the month plus a few older checks is likely to be among the outstanding checks.

As all checks that have been written are immediately recorded in the company's cash
account, there is no need to adjust the company's records for the outstanding checks.
However, the outstanding checks have not yet reached the bank and the bank statement.
Therefore, outstanding checks are listed on the bank reconciliation as a decrease in the
balance per bank.
Recall the helpful tip "put it where it isn't." An outstanding check is on the company's
book, but it is not on the bank statement. Put it where it is not: as an adjustment to the
balance on the bank statement.

Bank errors are mistakes made by the bank. Bank errors could include the bank
recording an incorrect amount, entering an amount that does not belong on a company's
bank statement, or omitting an amount from a company's bank statement. The company
should notify the bank of its errors. Depending on the error, the correction could increase

Hu, Accounting And Finance Department 4

 CASH AND RECEIVABLES

or decrease the balance shown on the bank statement. (Since the company did not make
the error, the company's records are not affected).
Step 2. Adjusting the Balance per Books
The second step of the bank reconciliation is to adjust the balance in the company's cash
account so that it is the true, adjusted, or corrected balance. Examples of the items
involved are shown in the following schedule:

Step 2. Balance per Books on Aug, 31 2006

Adjustments:

Add:Interest earned

Add: Notes collected by the bank

Deduct: Check printing charges

Deduct: Bank service charges

Deduct: NSF checks & fees

Add or Deduct: Errors in company's cash account

Adjusted/Corrected Balance per Books

Bank service charges are fees deducted from the bank statement for the bank's
processing activities related to the checking account (accepting deposits, posting checks,
mailing the bank statement, etc.) Other types of bank service charges include the fee
needs to be decreased by the amount of the service charges.
Recall the helpful tip "put it where it isn't." A bank service charge is already listed on the
bank statement, but it is not on the company's books. Put it where it is not: as an
adjustment to the cash account on the company's book.
An NSF check is a check that was not honored by the bank of the person or company
writing the check because that account did not have a sufficient balance. As a result, the
check is returned without being honored or paid. (NSF is the acronym for not sufficient
funds and the bank describes the returned check as a return item. Others refer to the NSF
check as a "rubber check" because the check "bounced" back from the bank on which it

HU, ACCOUNTING and FINANCE DEPARTMENT 5

 CASH AND RECEIVABLES

was written.) When the NSF check comes back to the bank in which it was deposited, the
bank will decrease the checking account of the company that had deposited the check.
The amount charged will be the amount of the check plus a bank fee.
Since the NSF check and the related bank fee have already been deducted on the bank
statement, there is no need to adjust the balance per the bank. However, if the company
has not yet decreased its cash account balance for the returned check and the bank fee,
the company must decrease the balance per books in order to reconcile.
Check printing charges occur when a company arranges for its bank to handle the
reordering of its checks. The cost of the printed checks will automatically be deducted
from the company's checking account.
Since the check printing charges have already been deducted on the bank statement,
there is no adjustment to the balance per bank. However, the check printing charges need
to be adjusted to the company book. They will be a deduction to company's Cash
account.
Interest earned will appear on the bank statement when a bank gives a company interest
on its account balances. The amount is added to the checking account balance and is
automatically on the bank statement. Hence, there is no need to adjust the balance per the
bank statement. However, the amount of interest earned will increase the balance in the
company's cash account on its books. Recall "put it where it isn't." Interest earned on the
current account in the bank is on the bank statement, but it is not on the company's books.
Put it where it is not: as an adjustment to the cash account on the company's book.
Notes Receivables are assets of a company. When notes come due, the company might
ask its bank to collect the note receivable. For this service, the bank will charge a fee. The
bank increases the company's checking account for the amount it collected (principal plus
interest) and will decrease the account by the collection fee it charges. Since these
amounts are already on the bank statement, the company must be certain that the amounts
appear on the company's book in its cash account.
Recall the tip "put it where it isn't." The amounts collected by the bank and the bank's
fees are on the bank statement, but they are not on the company's book. Put them where
they are not: as adjustments to the cash account on the company's book.

Hu, Accounting And Finance Department 6

 CASH AND RECEIVABLES

Errors in the company's cash account result from the company entering an incorrect
amount, entering a transaction that does not belong in the account, or omitting a
transaction that should be in the account. Since the company made these errors, the
correction of the error will be either an increase or a decrease to the balance in the cash
account on the company's books.
Step 3. Comparing the Adjusted Balances
Dear learners, after adjusting the balance per bank (step 1) and the balance per book (step
2), the two adjusted amounts should be equal. If they are not equal, you must repeat the
process until the balances are identical.

Self cheek
Name __________________________class _____id ____
1 what is Check printing charges
2 what is Bank service charges
2 define Notes Receivables

key Answer
Reference
Reference in the book and internet
WWW,COM accounting &Banking

, Records of individual takings are recorded accurately Journal entire

Information sheet 2

\3,2, Records of individual takings are recorded accurately Journal entire

3,2.1,.Introduction

The balances should be the true, correct amount of cash as of the date of the bank
reconciliation.

HU, ACCOUNTING and FINANCE DEPARTMENT 7

 CASH AND RECEIVABLES

Step 4. Preparing entries Records of individual takings are recorded accurately

Journal entries must be prepared for the adjustments to the balance per book (step 2).
Adjustments to increase the cash balance require a journal entry that debits cash account
and credits another account. Adjustments to decrease the cash balance require a credit to
cash and a debit to another account.

Example: 1
a. On February 28, the V. Trading received a bank statement. The cash balance as
per bank statement was Br. 29,517.72. On the other hand, the firms’ cash ledger
has got balance of Br. 28, 243.15 on the same date.
b. A total debit memorandum was Br .39 of which Br. 25 is NSF check and Br. 14 is
for bank service charge.
c. In verifying the canceled checks, it was found that a Br. 100 check was charged
by mistake to the account of the V. Trading on February 28 and included in the
canceled checks.
d. Outstanding checks were identified and listed as follows:
 Check No. 117, Br.127.56
 Check No. 118, Br.101.01
 Check No. 120, Br.375.00
e. Deposits in transit total Br. 220
f. Note and interest collected by bank Br 1,030.00
Bank reconciliation for V. trading will be prepared as follow:

Malka Qunture Company

Bank Reconciliation
February 28, 19X1
Balance on bank statement……………………………………………..Br. 29, 517.72
Add: Deposit in transit……………………………Br. 220
Bank error ……………………………… 100 320____
29,837.72
Deduct: Outstanding checks:

Hu, Accounting And Finance Department 8

 CASH AND RECEIVABLES

No 117, Feb. 27………………………Br. 127.56

No. 118, Feb.28 ……………………. 101.01
No. 120, Feb 28 ………………….. 375 603.57
Adjusted cash Balance…………………………………………………Br. 29,234.15

Balance as per depositor……………………………………………… Br 28, 243.75

Add Note and interest collected by bank ……………………………… 1,030.00
Br. 29,273.15
Deduct: Bank service charge ………………….. Br…14
NSF check………………………………. 25 39.00
Adjusted cash Balance………………………………………………… Br. 29,234.15

Preparing the journal entries

The last step is passing the journal entries for all data adjusted on cash balance as per
book. In other words, items in the second section of the bank reconciliation require
entries on the book of depositor to correct the cash account balance. The data used for
adjustment are those in the bank reconciliation section that begins with the balance as per
book. All information adjusted on the book balance in the reconciliation should be
recorded in the firm’s ledger.
The entries for V. Trading, based on the bank reconciliation above, are as follows:

Feb. 28 Cash in Bank…………………….1030

Notes Receivable………………………….1000
Interest income ………………………………30
(To record collection of receivable and interest by bank on behalf the V.Trading)

Feb. 28 Miscellaneous expense…………………..14

Cash in Ban……………………….14
(To record bank service charge)

Feb. 28 Account receivable……………….25

HU, ACCOUNTING and FINANCE DEPARTMENT 9

 CASH AND RECEIVABLES

Cash in Bank………………………..25
(To record NSF check)

After these entries are posted, the cash account balance will be Br. 29,234.15, the same
figure as the adjusted balance on the bank reconciliation. This is the amount of cash
available for use as of Feb.28 for preparation of balance sheet on the same day.

Example: 2
The January bank statement sent by Awash Bank to ABC Company shows Birr5,000.17
assume also that on January 31, 2012, the Cash account of ABC Company shows a
balance of Birr 4,262.83. The accountant of ABC Company has identified the following
items:
1. A deposit of Birr 410.90 made after banking hours on Jan. 31 does not appear on the
bank statement.
2. Two checks issued in January have not yet been paid by the bank:
Check No. 301 Birr 110.25
Check No. 342 607.50
3. A credit memorandum was included in the bank statement, which was for proceeds
from collection of a non-interest bearing note receivable to ABC Company Birr
524.74.
4. Two debit memorandums accompanied the bank statement, a check of Birr 50.25
received from a customer ,XYZ Company & deposited by ABC Company was
charged back as NSF & service charge by the bank for the month January amounts
Birr 17.00
5. Check No. 305 was issued by ABC Company for payment of telephone expense in
the amount of Birr 85 but was erroneously recorded in the cash payments journal as
Birr 58.

The January 31 bank reconciliation for ABC Company is shown below:

ABC Company
Bank Reconciliation
January 31, 2012

Balance per bank statement, Jan. 31, 2012 Br. 5,000.17

Add: Deposit of Jan. 31 not recorded by bank 410.90
Subtotal Br.5, 411.07
Deduct: outstanding checks:
No. 301 Br. 110.25
No. 342 607.50 (717.75)
Adjusted bank balance Br. 4,693.32

Balance per depositor’s record, Jan. 31, 2012 Br. 4,262.83

Hu, Accounting And Finance Department 10

 CASH AND RECEIVABLES

Add: Note Receivable collected by bank 524.74

Subtotal Br. 4,787.57
Deduct: NSF check of XYZ Company 50.25
Bank Service charge 17.00
Error on check stub No. 305 27.00 (94.25)
Adjusted book balance Br. 4,693.32

The following are journal entries related to the bank reconciliation.

2012 Cash in bank……………….. Birr 524.74

Jan. 31 Notes Receivable…………………..Birr 524.74
(To record Note Receivable collected by bank)

2012Miscellaneous Expense………………………….Birr 17.00

Jan.31Accounts Receivable-XYZ Co.…………………..Birr 50.25
Utilities Expense………………………………….Birr 27.00
Cash in bank………………………………………….Birr 94.25
(To record bank service charges, NSF check and error in recording Check No. 305)

Self cheek
Name __________________________class _____id ____

Example: 1
a. On February 28, the V. Trading received a bank statement. The cash balance as
per bank statement was Br. 29,517.72. On the other hand, the firms’ cash ledger
has got balance of Br. 28, 243.15 on the same date.
b. A total debit memorandum was Br .39 of which Br. 25 is NSF check and Br. 14 is
for bank service charge.
c. In verifying the canceled checks, it was found that a Br. 100 check was charged
by mistake to the account of the V. Trading on February 28 and included in the
canceled checks.
d. Outstanding checks were identified and listed as follows:
 Check No. 117, Br.127.56
 Check No. 118, Br.101.01
 Check No. 120, Br.375.00
e. Deposits in transit total Br. 220

HU, ACCOUNTING and FINANCE DEPARTMENT 11

 CASH AND RECEIVABLES

f. Note and interest collected by bank Br 1,030.00

Bank reconciliation for V. trading will be prepared as follow:

key Answer
Reference
Reference in the book and internet
WWW,COM accounting &Banking

Information sheet 3 , ,Petty cash fund in accounting

3.3 ,Petty cash fund in accounting

Petty cash fund, which is part of the total cash balance, is used to handle many types of
small payments such as employee transportation costs, purchase of office supplies,
purchase of postage stamps, and delivery charges. Many businesses find it convenient to
make minor expenditures instead of writing checks. The petty cash amount various from
Birr 50 or less to more than Birr 1,000, which will cover small expenditures for a period
of two or three weeks.

 Establishment of Petty Cash fund

To establish a petty cash fund a check is issued to a bank. This check is cashed and the
money is kept on hand in a petty cash box. One employee is designated as custodian of
the fund. The issuance of the check for establishment is recoded by debiting petty cash
account and crediting cash in bank.
Petty cash………………Xxx
Cash in bank………………….Xxx
(To establish the petty cash fund)
 Replenishment of Petty Cash fund
During the period, the custodian makes small payments form the petty cash fund and
obtains a receipt or prepares a petty cash voucher. This petty cash receipt explains the
nature and amount of various expenditures and is kept with the fund. When the fund runs
low or at the end of the company’s accounting period, a check is issued to reimburse the
fund for the expenditures made during the period. The issuance of this check is recorded
by debiting the appropriate expense accounts and crediting cash in bank account.
Various Expenses………………Xxx
Cash in bank………………….Xxx

Hu, Accounting And Finance Department 12

 CASH AND RECEIVABLES

(To replenish the petty cash fund)

Illustration:
Assume on January 1, 2004 Selam Company established a petty cash fund for Birr 400.
At the end of the month count of cash on hand indicate that Birr 81.60 cash remained in
the fund. Sorting of petty cash receipts disclosed that the following expenditures were
made from the fund.
Postage expenses………………………………….Birr139.60
Office supplies…………………………………… 72.75
Miscellaneous expenses…………………………. 104.05
Total………………………………………………… 316.40
Required: -Prepare the necessary entries to record the petty cash transaction for the
month of January, 2004

Solutions:
2004 Petty cash………………Birr 400
Jan. 1 Cash in bank………………….Birr 400
(To establish the petty cash fund)

Petty cash original…………………………………..Birr400.00

Total petty cash payment……………………………316.40
Cash that must be on hand……………………………83.60
Cash actually on hand………………………………..81.60
Cash shortage………………………………………….2.00

Postage expenses…………………………….Birr 139.60

Office supplies………………………………. 72.75
Miscellaneous expenses……………………. 104.05
Cash short & over…………………………… 2.00
Cash in bank…………………………….Birr 318.40
(To replenish the petty cash fund)

Note: Once the petty cash fund is established, an entry is made to petty cash only if the
amount of the fund is being changed.

1. Voucher System
One method to control cash disbursements is a voucher system. A voucher is a special
form, which contains relevant data about a liability and its payment.
In a voucher system, a voucher is prepared for each expenditure and approved by the
designated officials. Each approved voucher represents liability and recorded in a
voucher register, which is similar to purchases journal. Those registered vouchers are
filed according to their payment date in an unpaid vouchers file. The vouchers and

HU, ACCOUNTING and FINANCE DEPARTMENT 13

 CASH AND RECEIVABLES

supporting documents then are sent to the treasure or other official in the finance
department before issuing checks. When the checks are signed, the paid vouchers are
recorded in a check register which is similar to cash payments journal. Those paid
vouchers are filed in paid vouchers file according to their serial number for future
reference.

2. Change Fund
Some businesses that receive cash directly from customers should maintain a fund of
currency and coins in order to make change. This fund, which is part of the total cash
balance, is called change fund. A change fund is established by issuing a check to the
bank and transferring the cash to the custodian. The issuance of a check to establish a
change fund is recorded by debiting cash on hand/change fund and crediting cash in
bank account.

Note: Like that of the petty cash fund, once a change fund is established, there will be no
change in its balance unless there is a decision by management to increase or decrease the
fund balance.

3. Cash Short and Over

In handling cash receipts from daily sales, a few errors in making changes will occur.
These errors may cause a cash shortage or overage at the end of the day. The account
cash short and over is debited if there is shortage and credited if there is overage. At the
end of the period if the account had a debit balance; it appears in the Income statement as
miscellaneous expense, if it had a credit balance it appears in the Income statement as
miscellaneous revenue.

For example, assume that the total cash sales recorded during the day amounts to Birr
12,420. However, the cash receipts in the cash drawer (actual cash count) total Birr
12,415.
The following entry would be made to adjust the accounting records for the shortage in
the cash receipts:

Cash Short and Over……………..Birr5.00

Cash……………………………………Birr5.00
(To record a Br. 5.00 (Br. 12,420 – 12,415)
Shortage in cash receipts for the day)

Demonstration problem

1. On February 28, 2012, the cash ledger in Helen Company shows a debit balance of
Birr 19,144.15 while the bank statement provided by Abyssinia bank indicates a
balance of Birr31,391. 40. A receipt of February 28, for Birr6,215.50 was not
included in February bank statement. In addition the
2. checks, which were issued but not paid by the bank during this month totals
Birr11,021.50. Credit memorandums sent by the bank indicated that notes receivable
left with the bank for Birr6,000 had been collected and credited for Birr6,300

Hu, Accounting And Finance Department 14

 CASH AND RECEIVABLES

including interest revenue of Birr300. The bank statement included in debit

memorandums forBirr28.75 as a service charge for the month of February. Check No-
1334 issued for Birr855 had been recorded by bank as Birr585. A check for Birr1,275
had been recorded by Helen Company as Birr 2,175; it was for the payment of an
obligation to Alem Company on account.

Required:
a) Prepare bank reconciliation for Helen Company for the month of February.
b) Make the necessary journal entries.

3. On May31, 2010, the cash account in Merry Company shows a debit balance of Birr
13,215.80 while the bank statement provided by Dashen bank indicates a balance of
Birr19,513.90 the following items are identified in order to reconcile the two cash
balances:
a) Checks outstanding totaled Birr7,070.10.
b) A deposit of Birr3,915.20, representing receipts of May 31, had been made
too late to appear on the bank statement.
c) The bank had collected Birr3,120 on interest- bearing note left for
collection. The face of the note was Birr3, 000.
d) A check for Birr69 returned with the statement had been recorded
erroneously in the check register as Birr96. The check was for the payment
of an obligation to Helen Company for the purchase of office supplies on
account.
e) A check drawn for Birr42 had been wrongly charged by the bank as Birr24.
f) Bank service charges for May amounted to Birr21.80.

Required:-
a) Prepare bank reconciliation for Merry Company for the month of May.
b) Make the necessary journal entries.

4. Shown below is the information needed to prepare bank reconciliation for Z

Company at December 31.
a) At December 31, cash per the bank statement was Birr 15,981; cash per the
company’s records wasBirr17,445.
b) Two-debit memorandum accompanied the bank statement: service charges for
December of Birr24, and a Birr600 check drawn by AMI marked ‘NSF’.
c) Cash receipts of Birr4,353 on December 31 were not deposited until January.
d) The following checks had been issued in December but were not included among
the paid checks returned by the bank: no. 620 for Birr 978, no. 630 for Birr2,052,
and no. 641 forBirr483.

Required:-
1. Prepare a bank reconciliation at December 31

HU, ACCOUNTING and FINANCE DEPARTMENT 15

 CASH AND RECEIVABLES

2. Prepare the necessary journal entry or entries to update the accounting records
based on the reconciliation.

5. On January1, 2006, ABC Company established a petty cash fund to make payments
for minor expenditures for Birr 500. During January the petty cash receipts indicate
payments that are made for the following items.
Postage expenses…………………………………………… Birr 189.60
Office supplies………………………………………………112.75
Minor expenses………………………………………………60.05
Miscellaneous expenses……………………………………40.00
On January 31, 2006 the cash balance in the petty cash box Br. 95.20.

Required: -Prepare the necessary entries to record the petty cash transaction for the
month of January, 2006

Self cheek
Name __________________________class _____id ____

1 what is petty cashin Accounting

2, what are there two types of petty cash

key Answer
Reference

What do u mean by ratio?

In mathematics, a ratio indicates how many times one number contains another. ... A
ratio may be specified either by giving both constituting numbers, written as "a to b" or
"a∶b", or by giving just the value of their quotient ab. Equal quotients correspond to equal
ratios.

.
How do you solve a ratio problem?
To use proportions to solve ratio word problems, we need to follow these steps:
1. Identify the known ratio and the unknown ratio.
2. Set up the proportion.
3. Cross-multiply and solve.
4. Check the answer by plugging the result into the unknown ratio.

.
What is ideal cash ratio?

Hu, Accounting And Finance Department 16

 CASH AND RECEIVABLES

What happens if quick ratio is too high?

If the current ratio is too high, the company may be inefficiently using its current assets
or its short-term financing facilities. This may also indicate problems in working capital
management. The acid test ratio (or quick ratio) is similar to current ratio except in that
it ignores inventories.
.
What happens if quick ratio is too high?
What are cash equivalents examples?
Examples of cash equivalents are:
 Commercial paper.
 Marketable securities.
 Money market funds.
 Short-term government bonds.
 Treasury bills.
.
What are cash equivalents examples?
What are the types of cash?
Types of cash include currency, funds in bank accounts, and non-risky financial
instruments that are readily convertible to cash.

What are motives of holding cash?

Precautionary Motive:
Firms hold cash to meet uncertainties, emergencies, running out of cash and fluctuations
in cash balances. The holding of cash on these reasons are on precaution. The future
cash flows and the ability to borrow additional funds at short notice are often uncertain.
.
What are motives of holding cash?
What is the formula for ratio?
To find an equal ratio, you can either multiply or divide each term in the ratio by the
same number (but not zero). For example, if we divide both terms in the ratio 3:6 by the
number three, then we get the equal ratio, 1:2.
.
In mathematics, a ratio indicates how many times one number contains another. ... A
ratio may be specified either by giving both constituting numbers, written as "a to b" or
"a∶b", or by giving just the value of their quotient ab. Equal quotients correspond to equal
ratios.
.
How do you solve a ratio problem?
To use proportions to solve ratio word problems, we need to follow these steps:
1. Identify the known ratio and the unknown ratio.
2. Set up the proportion.
3. Cross-multiply and solve.
4. Check the answer by plugging the result into the unknown ratio.
.

HU, ACCOUNTING and FINANCE DEPARTMENT 17

 CASH AND RECEIVABLES

How do you solve a ratio problem?

How much debt is OK?
According to this rule, households should spend no more than 28% of their gross income
on home-related expenses (including mortgage payments, homeowners insurance,
property taxes, and condo/POA fees), and a maximum of 36% on total debt service (i.e.
housing expenses + other debt such as car loans and credit cards).
How do you analyze debt ratio?
Debt ratio is a solvency ratio that measures a firm's total liabilities as a percentage of its
total assets. In a sense, the debt ratio shows a company's ability to pay off its liabilities
with its assets. In other words, this shows how many assets the company must sell in
order to pay off all of its liabilities.
.
.
How do you analyze debt ratio?
What is a good equity ratio?
A good debt to equity ratio is around 1 to 1.5. However, the ideal debt to equity ratio
will vary depending on the industry because some industries use more debt financing
than others. Capital-intensive industries like the financial and manufacturing industries
often have higher ratios that can be greater than
.
blog.hubspot.com › sales › debt-equity-ratio
What is a good equity ratio?
What is a bad quick ratio?
A company that has a quick ratio of less than 1 may not be able to fully pay off its
current liabilities in the short term, while a company having a quick ratio higher than 1
can instantly get rid of its current liabilities.
.
What is a bad quick ratio?
What is ideal cash ratio?
The cash ratio is a liquidity ratio that measures a company's ability to pay off short-term
liabilities with highly liquid assets. ... There is no ideal figure, but a ratio of at least 0.5
to 1 is usually preferred.
.
corporatefinanceinstitute.com › knowledge › finance › cash-ratio-formula
What is ideal cash ratio?
What happens if quick ratio is too high?
If the current ratio is too high, the company may be inefficiently using its current assets
or its short-term financing facilities. This may also indicate problems in working capital
management. The acid test ratio (or quick ratio) is similar to current ratio except in that
it ignores inventories.
.
What happens if quick ratio is too high?
What are cash equivalents examples?
Examples of cash equivalents are:
 Commercial paper.
 Marketable securities.

Hu, Accounting And Finance Department 18

 CASH AND RECEIVABLES

 Money market funds.

 Short-term government bonds.
 Treasury bills.

Self cheek
Name __________________________class _____id ____

What do u mean by ratio

How do you solve proportions?
How do you solve a ratio problem?
How much debt is OK?
How do you analyze debt ratio?
What is a good equity ratio?
What are the types of cash?
Types of cash include currency, funds in bank accounts, and non-risky financial
instruments that are readily convertible to cash.

key Answer

Complied by Gezahegn , L
Reference in the book and internet
WWW,COM accounting &Banking

THANKS FOR All of YOU !!!!

HU, ACCOUNTING and FINANCE DEPARTMENT 19