Working Capital
Book Adjustments
+ Bank collections / - Service charges
Bank Adjustments
+ Deposits in Transit / - Outstanding Checks
Working Capital
A Measure of Solvency , higher the WC lower the Risk. WC= Current Assets - Current Liabilities.
Errors
Book Adjustments + Interest income / - NSF
Bank Reconciliation-Simple Reco.
Calculate "True Balance". Differences bt. the cash balance reported by the bank and the cash balance per the depositor's records are explained thru this BRS.
Quick Ratio
Cash+Net RecIeivables+Marketable Securities/CL. It excludes inventory and turnover is too low. It is a more conservative measure of solvency.
Components of Current assets
Cash/Trading Securities/other ST invst./ Accounts & Notes receivable/Trade install rece./Inventories/Prepaid Exps/Cash surrender value of life insurance(Provided the policy owner intends to surrender)
Current Ratio
Current Assets / Current Liabilites, bigger the CA, lower the CL , results lower will be the Risk.It assumes Inventory is liquid.
Sources of CL
It may arise from regular business operations or to meet cash needs through bank borrowings.
Bank Rec. - Recon. of Cash Receipts and Disbursements
It serves as a proof of the proper recording of cash transactions it is a four-column approach. The object is to recon. any differences bt. the amount the depositor has recorded as cash receipts and the amount the bank has recorded as deposits. Likewise it determines any diff bt. the depositor has recorded as cash disbursements and amounts the bank has recorded as checks paid.
Current Liabilities
Obligations for items that have entered the operating cycle It includes estimates or accrued amounts
Current Assets
Resources that are reasonably expected to be realized in cash , sold or consumed during an op. cycle or one yr whichver is longer.
Restricted Cash
That has been set aside for a specific use or purpose.
Not Cash or Cash equivalents
Time certificates of Deposits(maturity over 90 days) / Legally restricted deposits held as compensating balance
Types of CL
Trade accounts & Notes Payable/Current portions of long-term debt/cash dividends payable/Acc liabilities/Payroll liab./Taxes payable/Advances from customers
Classification of ST liabi to be refinanced
if the company intends to refinanced it short term liab - then it will be considered as non current asset provided - it should be done before the issuance of fin.stmts, the existence of a noncanceable agreement from a lender.
Restricted cash-current asset
if the restriction is associated with a current asset or current liability classify it as current asset but seperate from unrestricted cash
Restricted Cash-Non Current Asset
if the restriction is associated with a non current asset or non current liability classify it as non current asset but seperate from either the Investments or Other Assets section.
Cash and Cash Equivalents
includes short term , highly liquid investments that are readily convertible to cash and so near their maturity i.e., 90 days or less from date of purchase.
Unrestriced cash
is used for all current operations and nature,amount and timing of restrictions should be disclosed in the footnotes
Examples of Cash or Cash equivalents
Coin & currency on hand / Checking accounts / Savings accounts / Money market funds / Deposits held as compensating not legally restricted / Negotiable Papers(bank chks,money orders,traverlers chks,commercial paper,treasury bills,certificate of deposit)
