{"id":3183,"date":"2019-12-22T11:29:20","date_gmt":"2019-12-22T11:29:20","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3183"},"modified":"2019-12-22T11:29:20","modified_gmt":"2019-12-22T11:29:20","slug":"absolute-liquid-ratio-formula","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/absolute-liquid-ratio-formula\/","title":{"rendered":"ABSOLUTE LIQUID RATIO FORMULA"},"content":{"rendered":"\n<h1 class=\"has-text-align-center wp-block-heading\"><strong>ABSOLUTE LIQUID RATIO FORMULA<\/strong><\/h1>\n\n\n\n<p>Absolute Liquid Ratio is a type of liquidity ratio that is calculated to analyze the short term solvency or financial position of the firm. It is calculated to exclude the receivables from the current and liquid assets and to know about the absolute liquid assets. Although receivables, debtors and bills receivables are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or on time as there are the chances of bad debts. To exclude this possibility, absolute ratio is calculated. The absolute <a href=\"https:\/\/commerceiets.com\/liquid-ratio-interpretation\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"liquid ratio (opens in a new tab)\">liquid ratio<\/a> is also known as Cash ratio. The absolute liquid ratio formula is:<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background\"><strong>Absolute Liquid Ratio= Absolute Liquid Assets\/ Current Liabilities<\/strong><\/p>\n\n\n\n<p><strong>ABSOLUTE LIQUID\nASSETS: <\/strong>The assets included in absolute liquid assets are as follows:<\/p>\n\n\n\n<ul><li><strong>Cash in\nHand:<\/strong> Cash in hand means the cash available with the business house at a\npoint of time.<\/li><li><strong>Cash at\nBank:<\/strong> Cash at bank means the cash that is with the business by the way of\ndeposits in the bank accounts may it be saving account, current account or any\nkind of other account.<\/li><li><strong>Marketable\nSecurities: <\/strong>Marketable Securities are those securities that can be readily\nconverted in to the cash by sale. These are generally traded in the money\nmarket. These securities are also known as temporary investments.<\/li><\/ul>\n\n\n\n<p><strong>CURRENT LIABILITIES: <\/strong>Current\nliabilities are the liabilities payable within 12 months from the date of\nbalance sheet or within the period of operating cycle. Current liabilities\ninclude the following liabilities:<\/p>\n\n\n\n<ul><li><strong>Short\nterm borrowings: <\/strong>Short term borrowings are those borrowings that the\nbusiness house has to repay within 12 months or a year. These borrowings may be\nsecured or unsecured.<\/li><li><strong>Trade\npayables i.e. creditors and bills payable: <\/strong>Trade Payables includes the\ncreditors or bills payable. Creditors are the persons from whom the business\npurchases the goods on credit and make guarantee to repay their payment on some\nfuture date.<\/li><li><strong>Short\nterm provisions: <\/strong>&nbsp;The provisions like\nprovision for doubtful debts, provisions for repairs, provision for taxation\nare short term provisions. These made to meet any short term liability that\nmight arise in the future.<\/li><li><strong>Outstanding\nexpenses: <\/strong>The expenses which have become due but are not paid yet are\nOutstanding Expenses. Example of these expenses is: Salary due but not paid,\nElectricity bill due but not paid, etc.<\/li><li><strong>Incomes\nreceived in advance: <\/strong>The incomes received in advance makes the business\nhouse liable to perform the contract.<\/li><\/ul>\n\n\n\n<p class=\"has-text-align-center\"><strong>IDEAL ABSOLUTE LIQUID\nRATIO<\/strong><\/p>\n\n\n\n<p>The ideal standard for this ratio is 0.5:1 i.e. 50%. This\nmeans Rs. 1 worth absolute liquid assets are considered adequate to pay Rs. 2\nworth current liabilities in time as all the creditors are not expected to\ndemand cash at the same time and then cash may also be realized from debtors\nand inventories.<\/p>\n\n\n\n<p><strong>EXAMPLE: <\/strong>Suppose\nthe firm has following assets and liabilities: <\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  Goodwill\n  <\/td><td>\n  50,000\n  <\/td><td>\n  Cash at bank\n  <\/td><td>\n  30,000\n  <\/td><\/tr><tr><td>\n  Plant and machinery\n  <\/td><td>\n  4,00,000\n  <\/td><td>\n  Inventories\n  <\/td><td>\n  75,000\n  <\/td><\/tr><tr><td>\n  Trade investments\n  <\/td><td>\n  2,00,000\n  <\/td><td>\n  Bank overdraft\n  <\/td><td>\n  70,000\n  <\/td><\/tr><tr><td>\n  Marketable securities\n  <\/td><td>\n  1,50,000\n  <\/td><td>\n  Sundry creditors\n  <\/td><td>\n  60,000\n  <\/td><\/tr><tr><td>\n  Bills receivables\n  <\/td><td>\n  40,000\n  <\/td><td>\n  Bills payable\n  <\/td><td>\n  90,000\n  <\/td><\/tr><tr><td>\n  Cash in hand\n  <\/td><td>\n  45,000\n  <\/td><td>\n  Outstanding expenses\n  <\/td><td>\n  30,000\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>Absolute Liquid Ratio= Absolute Liquid Assets\/ Current Liabilities<\/strong><\/p>\n\n\n\n<p><strong>Absolute liquid assets= marketable securities+ cash in hand+ cash at bank<\/strong><\/p>\n\n\n\n<p>=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n<p>=2,25,000<\/p>\n\n\n\n<p><strong>Current Liabilities= Bank Overdraft+ Sundry Creditors + Bills payable+ Outstanding expenses<\/strong><\/p>\n\n\n\n<p>= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n<p>= 2,50,000<\/p>\n\n\n\n<p>Absolute liquid ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n<p>= 0.9.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a 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href=\"https:\/\/commerceiets.com\/process-of-accounting\/\"><strong>Process of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-venture\/\"><strong>Joint venture<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/methods-of-branch-accounting\/\"><strong>Methods of branch accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/double-entry-system-of-accounting\/\"><strong>Double entry system of book keeping<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-accounting\/\"><strong>Scope of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-joint-venture-and-partnership\/\"><strong>Joint Venture Vs Partnership<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incorporation-of-branch-trial-balance\/\"><strong>Incorporation of branch trial balance<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-double-single-entry-system\/\"><strong>Double entry vs Single entry system<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-accounting-concepts-and-conventions\/\"><strong>Accounting Concepts vs Accounting conventions<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/methods-of-recording-transactions-in-joint-venture\/\"><strong>Methods of recording transactions in Joint Venture<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/garner-vs-murray-rule\/\"><strong>Garner VS Murray Rule<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/history-of-accounting-pdf\/\"><strong>History of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-provisions-and-reserves\/\"><strong>Difference between provisions and reserves<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consignment\/\"><strong>Consignment<\/strong><\/a><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>ABSOLUTE LIQUID RATIO FORMULA Absolute Liquid Ratio is a type of liquidity ratio that is calculated to analyze the short term solvency or financial position of the firm. It is calculated to exclude the receivables from the current and liquid assets and to know about the absolute liquid assets. Although receivables, debtors and bills receivables&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/absolute-liquid-ratio-formula\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;ABSOLUTE LIQUID RATIO FORMULA&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3180,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19,11],"tags":[],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3183"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3183"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3183\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3180"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3183"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3183"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3183"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}