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In this article, we explained Liquidity Ratio from Accounting Ratios of 12th Accountancy as per TS Grewal Class 12. Takshila Learning is providing Accountancy Class 12 online classes for CBSE Board Exam Preparation via HD-quality video lectures with detail explanation of the content by experienced faculties. Our Faculties also provide articles/notes on important topics for your better understanding of the subject matter.
So Let’s start:
Accounting Ratio is a numerical relationship between two accounting variables of financial statements. Accounting Ratio provides a deeper analysis of the liquidity, solvency, profitability and activity levels in the business. Through accounting Ratios know about the potential areas which can be improved with the effort in the desired direction. Accounting Ratios are classified from an objective point of view as Liquidity Ratios, solvency Ratios, activity Ratio, and profitability Ratio. In this article, we discussed Liquidity Ratio.
Current Ratio represents the relationship between Current assets and Current liabilities. Current Ratio is calculated by dividing Currents by Current liabilities on a particular date.
Terms used in the formula:
Current assets– Current assets are those which will normally convert themselves into cash within one accounting year. Current assets include
Current Liabilities – Current Liabilities are those liabilities which are likely to be paid within one accounting year. Current Liabilities includes:-
Objective and Significance of Current Ratio
The main objective of calculating the Current Ratio is to access the ability of the enterprise to meet the short-term obligations promptly.
A Current Ratio of 2:1 is generally considered to be acceptable. If the Current Ratio is more than 2:1, it is beneficial to the short-term creditors. If the Ratio is less than 2:1, it indicates a lack of liquidity and shortage of working capital
For Examples of Current Ratios, Click here Accountancy classes.
II – Quick or Liquid or Acid test Ratio
The relationship between liquid asset and Current liabilities. Quick Ratio is computed by dividing liquid assets by Current liabilities.
Terms used In Formula:
Liquid assets= all Current assets-Inventories-other Current assets (prepaid Expenses+payment of Advance tax)
Current liabilities = same as used in Current Ratio
Objective and Significance
The objective of calculating the Quick Ratio is to ascertain the short-term liquidity position of the enterprise. As liquidity implies the ability to convert Current assets into cash.
Generally, a Quick Ratio of 1:1 or more is considered to be good for the reason that it indicates the availability of funds to meet the liabilities 100%.
HD-quality recorded lectures for ‘Liquidity Ratios’, Solvency Ratios, Activity Ratios, profitability Ratios from ‘CBSE class 12 accountancy classes’ is available here.
Also check our another article on Ratios under partnership –
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