Cash Ratio is a type of liquidity ratio<\/a> 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 Cash 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 Cash ratio is also known as Cash ratio. The Cash ratio formula is:<\/p>\n\n\n\nCash Ratio= Cash Assets\/ Current Liabilities<\/strong><\/p>\n\n\n\nCASH ASSETS: <\/strong>The\nassets included in Cash assets are as follows:<\/p>\n\n\n\nCash in\nHand:<\/strong> Cash in hand means the cash available with the business house at a\npoint of time.<\/li>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>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\nCURRENT 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\nShort\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>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>Short\nterm provisions: <\/strong> 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>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>Incomes\nreceived in advance: <\/strong>The incomes received in advance makes the business\nhouse liable to perform the contract.<\/li><\/ul>\n\n\n\nIDEAL CASH RATIO<\/strong><\/p>\n\n\n\nThe ideal standard for this ratio is 0.5:1 i.e. 50%. This\nmeans Rs. 1 worth Cash assets are considered adequate to pay Rs. 2 worth\ncurrent liabilities in time as all the creditors are not expected to demand\ncash at the same time and then cash may also be realized from debtors and\ninventories.<\/p>\n\n\n\nEXAMPLE: <\/strong>Suppose\nthe firm has following assets and liabilities: <\/p>\n\n\n\n\n Goodwill\n <\/td>\n 50,000\n <\/td>\n Cash at bank\n <\/td>\n 30,000\n <\/td><\/tr>\n Plant and machinery\n <\/td>\n 4,00,000\n <\/td>\n Inventories\n <\/td>\n 75,000\n <\/td><\/tr>\n Trade investments\n <\/td>\n 2,00,000\n <\/td>\n Bank overdraft\n <\/td>\n 70,000\n <\/td><\/tr>\n Marketable securities\n <\/td>\n 1,50,000\n <\/td>\n Sundry creditors\n <\/td>\n 60,000\n <\/td><\/tr>\n Bills receivables\n <\/td>\n 40,000\n <\/td>\n Bills payable\n <\/td>\n 90,000\n <\/td><\/tr>\n Cash in hand\n <\/td>\n 45,000\n <\/td>\n Outstanding expenses\n <\/td>\n 30,000\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nCash Ratio= Cash Assets\/ Current Liabilities<\/p>\n\n\n\nCash assets= marketable securities+ cash in hand+ cash at\nbank<\/p>\n\n\n\n=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n=2,25,000<\/p>\n\n\n\nCurrent Liabilities= Bank Overdraft+ Sundry Creditors +\nBills payable+ Outstanding expenses<\/p>\n\n\n\n= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n= 2,50,000<\/p>\n\n\n\nCash ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n= 0.9.<\/p>\n\n\n\n\nCONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\nAlso Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td><\/tr>Accounting<\/strong><\/a><\/td>Non profit organisation<\/strong><\/a><\/td>Depreciation<\/strong><\/a><\/td>Liquidity ratios<\/strong><\/a><\/td><\/tr>Nature of Accounting<\/strong><\/a><\/td>Receipts and Payments Account<\/strong><\/a><\/td>Depreciation Accounting<\/strong><\/a><\/td>Acid Test Ratio<\/strong><\/a><\/td><\/tr>Benefits of Accounting<\/strong><\/a><\/td>Scope of accounting<\/strong><\/a><\/td>Hire Purchase Accounting<\/strong><\/a><\/td>Cash Ratio<\/strong><\/a><\/td><\/tr>Difference between cost accounting and financial accounting<\/strong><\/a><\/td>Financial accounting, cost accounting and management accounting<\/strong><\/a><\/td>Difference between hire purchase and instalment system<\/strong><\/a><\/td>Financial ratio analysis<\/strong><\/a><\/td><\/tr>Difference between transaction and event<\/strong><\/a><\/td>Transactions<\/strong><\/a><\/td>Users of Accounting<\/strong><\/a><\/td>Ratio analysis<\/strong><\/a><\/td><\/tr>Limitation of Accounting<\/strong><\/a><\/td>Capital Expenditure<\/strong><\/a><\/td>Instalment System<\/strong><\/a><\/td>Difference between consignment and sale<\/strong><\/a><\/td><\/tr>Book Keeping<\/strong><\/a><\/td>Revenue Expenditure<\/strong><\/a><\/td>Reserves Accounting<\/strong><\/a><\/td>Abnormal loss vs normal loss in consignment<\/strong><\/a><\/td><\/tr>Accountancy<\/strong><\/a><\/td>Difference between capital and revenue expenditure<\/strong><\/a><\/td>Provisions <\/strong><\/a><\/td>Treatment of loss on consignment<\/strong><\/a><\/td><\/tr>Accounting as science or an art<\/strong><\/a><\/td>Accounting Equation<\/strong><\/a><\/td>Single entry system<\/strong><\/a><\/td>Accounting treatment of consignment<\/strong><\/a><\/td><\/tr>Book Keeping vs accounting<\/strong><\/a><\/td>Deferred Revenue Expenditure<\/strong><\/a><\/td>Difference between statement of affairs and balance sheet<\/strong><\/a><\/td>Joint venture vs consignment<\/strong><\/a><\/td><\/tr>Book keeping vs accountancy<\/strong><\/a><\/td>Capital receipt<\/strong><\/a><\/td>IFRS<\/strong><\/a><\/td>Departmental Accounting<\/strong><\/a><\/td><\/tr>Accounting vs accountancy<\/strong><\/a><\/td>Revenue receipt<\/strong><\/a><\/td>Balance Sheet<\/strong><\/a><\/td>Methods of departmental accounting<\/strong><\/a><\/td><\/tr>Basis of Accounting<\/strong><\/a><\/td>Difference between capital and revenue receipt<\/strong><\/a><\/td>Profit and loss Account<\/strong><\/a><\/td>Allocation of expenses in departmental accounting<\/strong><\/a><\/td><\/tr>Branches of accounting<\/strong><\/a><\/td>Difference between accounting concepts and conventions<\/strong><\/a><\/td>Trading Account<\/strong><\/a><\/td>Inter-departmental transfers<\/strong><\/a><\/td><\/tr>Cash and mercantile system of accounting<\/strong><\/a><\/td>Accounting Standards<\/strong><\/a><\/td>Voyage Account<\/strong><\/a><\/td>Different types of branches<\/strong><\/a><\/td><\/tr>Accounting Principles<\/strong><\/a><\/td>Objectives of Accounting<\/strong><\/a><\/td>
Cash Ratio= Cash Assets\/ Current Liabilities<\/strong><\/p>\n\n\n\nCASH ASSETS: <\/strong>The\nassets included in Cash assets are as follows:<\/p>\n\n\n\nCash in\nHand:<\/strong> Cash in hand means the cash available with the business house at a\npoint of time.<\/li>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>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\nCURRENT 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\nShort\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>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>Short\nterm provisions: <\/strong> 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>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>Incomes\nreceived in advance: <\/strong>The incomes received in advance makes the business\nhouse liable to perform the contract.<\/li><\/ul>\n\n\n\nIDEAL CASH RATIO<\/strong><\/p>\n\n\n\nThe ideal standard for this ratio is 0.5:1 i.e. 50%. This\nmeans Rs. 1 worth Cash assets are considered adequate to pay Rs. 2 worth\ncurrent liabilities in time as all the creditors are not expected to demand\ncash at the same time and then cash may also be realized from debtors and\ninventories.<\/p>\n\n\n\nEXAMPLE: <\/strong>Suppose\nthe firm has following assets and liabilities: <\/p>\n\n\n\n\n Goodwill\n <\/td>\n 50,000\n <\/td>\n Cash at bank\n <\/td>\n 30,000\n <\/td><\/tr>\n Plant and machinery\n <\/td>\n 4,00,000\n <\/td>\n Inventories\n <\/td>\n 75,000\n <\/td><\/tr>\n Trade investments\n <\/td>\n 2,00,000\n <\/td>\n Bank overdraft\n <\/td>\n 70,000\n <\/td><\/tr>\n Marketable securities\n <\/td>\n 1,50,000\n <\/td>\n Sundry creditors\n <\/td>\n 60,000\n <\/td><\/tr>\n Bills receivables\n <\/td>\n 40,000\n <\/td>\n Bills payable\n <\/td>\n 90,000\n <\/td><\/tr>\n Cash in hand\n <\/td>\n 45,000\n <\/td>\n Outstanding expenses\n <\/td>\n 30,000\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nCash Ratio= Cash Assets\/ Current Liabilities<\/p>\n\n\n\nCash assets= marketable securities+ cash in hand+ cash at\nbank<\/p>\n\n\n\n=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n=2,25,000<\/p>\n\n\n\nCurrent Liabilities= Bank Overdraft+ Sundry Creditors +\nBills payable+ Outstanding expenses<\/p>\n\n\n\n= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n= 2,50,000<\/p>\n\n\n\nCash ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n= 0.9.<\/p>\n\n\n\n\nCONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\nAlso Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td><\/tr>Accounting<\/strong><\/a><\/td>Non profit organisation<\/strong><\/a><\/td>Depreciation<\/strong><\/a><\/td>Liquidity ratios<\/strong><\/a><\/td><\/tr>Nature of Accounting<\/strong><\/a><\/td>Receipts and Payments Account<\/strong><\/a><\/td>Depreciation Accounting<\/strong><\/a><\/td>Acid Test Ratio<\/strong><\/a><\/td><\/tr>Benefits of Accounting<\/strong><\/a><\/td>Scope of accounting<\/strong><\/a><\/td>Hire Purchase Accounting<\/strong><\/a><\/td>Cash Ratio<\/strong><\/a><\/td><\/tr>Difference between cost accounting and financial accounting<\/strong><\/a><\/td>Financial accounting, cost accounting and management accounting<\/strong><\/a><\/td>Difference between hire purchase and instalment system<\/strong><\/a><\/td>Financial ratio analysis<\/strong><\/a><\/td><\/tr>Difference between transaction and event<\/strong><\/a><\/td>Transactions<\/strong><\/a><\/td>Users of Accounting<\/strong><\/a><\/td>Ratio analysis<\/strong><\/a><\/td><\/tr>Limitation of Accounting<\/strong><\/a><\/td>Capital Expenditure<\/strong><\/a><\/td>Instalment System<\/strong><\/a><\/td>Difference between consignment and sale<\/strong><\/a><\/td><\/tr>Book Keeping<\/strong><\/a><\/td>Revenue Expenditure<\/strong><\/a><\/td>Reserves Accounting<\/strong><\/a><\/td>Abnormal loss vs normal loss in consignment<\/strong><\/a><\/td><\/tr>Accountancy<\/strong><\/a><\/td>Difference between capital and revenue expenditure<\/strong><\/a><\/td>Provisions <\/strong><\/a><\/td>Treatment of loss on consignment<\/strong><\/a><\/td><\/tr>Accounting as science or an art<\/strong><\/a><\/td>Accounting Equation<\/strong><\/a><\/td>Single entry system<\/strong><\/a><\/td>Accounting treatment of consignment<\/strong><\/a><\/td><\/tr>Book Keeping vs accounting<\/strong><\/a><\/td>Deferred Revenue Expenditure<\/strong><\/a><\/td>Difference between statement of affairs and balance sheet<\/strong><\/a><\/td>Joint venture vs consignment<\/strong><\/a><\/td><\/tr>Book keeping vs accountancy<\/strong><\/a><\/td>Capital receipt<\/strong><\/a><\/td>IFRS<\/strong><\/a><\/td>Departmental Accounting<\/strong><\/a><\/td><\/tr>Accounting vs accountancy<\/strong><\/a><\/td>Revenue receipt<\/strong><\/a><\/td>Balance Sheet<\/strong><\/a><\/td>Methods of departmental accounting<\/strong><\/a><\/td><\/tr>Basis of Accounting<\/strong><\/a><\/td>Difference between capital and revenue receipt<\/strong><\/a><\/td>Profit and loss Account<\/strong><\/a><\/td>Allocation of expenses in departmental accounting<\/strong><\/a><\/td><\/tr>Branches of accounting<\/strong><\/a><\/td>Difference between accounting concepts and conventions<\/strong><\/a><\/td>Trading Account<\/strong><\/a><\/td>Inter-departmental transfers<\/strong><\/a><\/td><\/tr>Cash and mercantile system of accounting<\/strong><\/a><\/td>Accounting Standards<\/strong><\/a><\/td>Voyage Account<\/strong><\/a><\/td>Different types of branches<\/strong><\/a><\/td><\/tr>Accounting Principles<\/strong><\/a><\/td>Objectives of Accounting<\/strong><\/a><\/td>
CASH ASSETS: <\/strong>The\nassets included in Cash assets are as follows:<\/p>\n\n\n\nCash in\nHand:<\/strong> Cash in hand means the cash available with the business house at a\npoint of time.<\/li>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>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\nCURRENT 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\nShort\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>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>Short\nterm provisions: <\/strong> 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>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>Incomes\nreceived in advance: <\/strong>The incomes received in advance makes the business\nhouse liable to perform the contract.<\/li><\/ul>\n\n\n\nIDEAL CASH RATIO<\/strong><\/p>\n\n\n\nThe ideal standard for this ratio is 0.5:1 i.e. 50%. This\nmeans Rs. 1 worth Cash assets are considered adequate to pay Rs. 2 worth\ncurrent liabilities in time as all the creditors are not expected to demand\ncash at the same time and then cash may also be realized from debtors and\ninventories.<\/p>\n\n\n\nEXAMPLE: <\/strong>Suppose\nthe firm has following assets and liabilities: <\/p>\n\n\n\n\n Goodwill\n <\/td>\n 50,000\n <\/td>\n Cash at bank\n <\/td>\n 30,000\n <\/td><\/tr>\n Plant and machinery\n <\/td>\n 4,00,000\n <\/td>\n Inventories\n <\/td>\n 75,000\n <\/td><\/tr>\n Trade investments\n <\/td>\n 2,00,000\n <\/td>\n Bank overdraft\n <\/td>\n 70,000\n <\/td><\/tr>\n Marketable securities\n <\/td>\n 1,50,000\n <\/td>\n Sundry creditors\n <\/td>\n 60,000\n <\/td><\/tr>\n Bills receivables\n <\/td>\n 40,000\n <\/td>\n Bills payable\n <\/td>\n 90,000\n <\/td><\/tr>\n Cash in hand\n <\/td>\n 45,000\n <\/td>\n Outstanding expenses\n <\/td>\n 30,000\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nCash Ratio= Cash Assets\/ Current Liabilities<\/p>\n\n\n\nCash assets= marketable securities+ cash in hand+ cash at\nbank<\/p>\n\n\n\n=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n=2,25,000<\/p>\n\n\n\nCurrent Liabilities= Bank Overdraft+ Sundry Creditors +\nBills payable+ Outstanding expenses<\/p>\n\n\n\n= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n= 2,50,000<\/p>\n\n\n\nCash ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n= 0.9.<\/p>\n\n\n\n\nCONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\nAlso Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td><\/tr>Accounting<\/strong><\/a><\/td>Non profit organisation<\/strong><\/a><\/td>Depreciation<\/strong><\/a><\/td>Liquidity ratios<\/strong><\/a><\/td><\/tr>Nature of Accounting<\/strong><\/a><\/td>Receipts and Payments Account<\/strong><\/a><\/td>Depreciation Accounting<\/strong><\/a><\/td>Acid Test Ratio<\/strong><\/a><\/td><\/tr>Benefits of Accounting<\/strong><\/a><\/td>Scope of accounting<\/strong><\/a><\/td>Hire Purchase Accounting<\/strong><\/a><\/td>Cash Ratio<\/strong><\/a><\/td><\/tr>Difference between cost accounting and financial accounting<\/strong><\/a><\/td>Financial accounting, cost accounting and management accounting<\/strong><\/a><\/td>Difference between hire purchase and instalment system<\/strong><\/a><\/td>Financial ratio analysis<\/strong><\/a><\/td><\/tr>Difference between transaction and event<\/strong><\/a><\/td>Transactions<\/strong><\/a><\/td>Users of Accounting<\/strong><\/a><\/td>Ratio analysis<\/strong><\/a><\/td><\/tr>Limitation of Accounting<\/strong><\/a><\/td>Capital Expenditure<\/strong><\/a><\/td>Instalment System<\/strong><\/a><\/td>Difference between consignment and sale<\/strong><\/a><\/td><\/tr>Book Keeping<\/strong><\/a><\/td>Revenue Expenditure<\/strong><\/a><\/td>Reserves Accounting<\/strong><\/a><\/td>Abnormal loss vs normal loss in consignment<\/strong><\/a><\/td><\/tr>Accountancy<\/strong><\/a><\/td>Difference between capital and revenue expenditure<\/strong><\/a><\/td>Provisions <\/strong><\/a><\/td>Treatment of loss on consignment<\/strong><\/a><\/td><\/tr>Accounting as science or an art<\/strong><\/a><\/td>Accounting Equation<\/strong><\/a><\/td>Single entry system<\/strong><\/a><\/td>Accounting treatment of consignment<\/strong><\/a><\/td><\/tr>Book Keeping vs accounting<\/strong><\/a><\/td>Deferred Revenue Expenditure<\/strong><\/a><\/td>Difference between statement of affairs and balance sheet<\/strong><\/a><\/td>Joint venture vs consignment<\/strong><\/a><\/td><\/tr>Book keeping vs accountancy<\/strong><\/a><\/td>Capital receipt<\/strong><\/a><\/td>IFRS<\/strong><\/a><\/td>Departmental Accounting<\/strong><\/a><\/td><\/tr>Accounting vs accountancy<\/strong><\/a><\/td>Revenue receipt<\/strong><\/a><\/td>Balance Sheet<\/strong><\/a><\/td>Methods of departmental accounting<\/strong><\/a><\/td><\/tr>Basis of Accounting<\/strong><\/a><\/td>Difference between capital and revenue receipt<\/strong><\/a><\/td>Profit and loss Account<\/strong><\/a><\/td>Allocation of expenses in departmental accounting<\/strong><\/a><\/td><\/tr>Branches of accounting<\/strong><\/a><\/td>Difference between accounting concepts and conventions<\/strong><\/a><\/td>Trading Account<\/strong><\/a><\/td>Inter-departmental transfers<\/strong><\/a><\/td><\/tr>Cash and mercantile system of accounting<\/strong><\/a><\/td>Accounting Standards<\/strong><\/a><\/td>Voyage Account<\/strong><\/a><\/td>Different types of branches<\/strong><\/a><\/td><\/tr>Accounting Principles<\/strong><\/a><\/td>Objectives of Accounting<\/strong><\/a><\/td>
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\nShort\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>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>Short\nterm provisions: <\/strong> 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>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>Incomes\nreceived in advance: <\/strong>The incomes received in advance makes the business\nhouse liable to perform the contract.<\/li><\/ul>\n\n\n\nIDEAL CASH RATIO<\/strong><\/p>\n\n\n\nThe ideal standard for this ratio is 0.5:1 i.e. 50%. This\nmeans Rs. 1 worth Cash assets are considered adequate to pay Rs. 2 worth\ncurrent liabilities in time as all the creditors are not expected to demand\ncash at the same time and then cash may also be realized from debtors and\ninventories.<\/p>\n\n\n\nEXAMPLE: <\/strong>Suppose\nthe firm has following assets and liabilities: <\/p>\n\n\n\n\n Goodwill\n <\/td>\n 50,000\n <\/td>\n Cash at bank\n <\/td>\n 30,000\n <\/td><\/tr>\n Plant and machinery\n <\/td>\n 4,00,000\n <\/td>\n Inventories\n <\/td>\n 75,000\n <\/td><\/tr>\n Trade investments\n <\/td>\n 2,00,000\n <\/td>\n Bank overdraft\n <\/td>\n 70,000\n <\/td><\/tr>\n Marketable securities\n <\/td>\n 1,50,000\n <\/td>\n Sundry creditors\n <\/td>\n 60,000\n <\/td><\/tr>\n Bills receivables\n <\/td>\n 40,000\n <\/td>\n Bills payable\n <\/td>\n 90,000\n <\/td><\/tr>\n Cash in hand\n <\/td>\n 45,000\n <\/td>\n Outstanding expenses\n <\/td>\n 30,000\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nCash Ratio= Cash Assets\/ Current Liabilities<\/p>\n\n\n\nCash assets= marketable securities+ cash in hand+ cash at\nbank<\/p>\n\n\n\n=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n=2,25,000<\/p>\n\n\n\nCurrent Liabilities= Bank Overdraft+ Sundry Creditors +\nBills payable+ Outstanding expenses<\/p>\n\n\n\n= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n= 2,50,000<\/p>\n\n\n\nCash ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n= 0.9.<\/p>\n\n\n\n\nCONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\nAlso Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td><\/tr>Accounting<\/strong><\/a><\/td>Non profit organisation<\/strong><\/a><\/td>Depreciation<\/strong><\/a><\/td>Liquidity ratios<\/strong><\/a><\/td><\/tr>Nature of Accounting<\/strong><\/a><\/td>Receipts and Payments Account<\/strong><\/a><\/td>Depreciation Accounting<\/strong><\/a><\/td>Acid Test Ratio<\/strong><\/a><\/td><\/tr>Benefits of Accounting<\/strong><\/a><\/td>Scope of accounting<\/strong><\/a><\/td>Hire Purchase Accounting<\/strong><\/a><\/td>Cash Ratio<\/strong><\/a><\/td><\/tr>Difference between cost accounting and financial accounting<\/strong><\/a><\/td>Financial accounting, cost accounting and management accounting<\/strong><\/a><\/td>Difference between hire purchase and instalment system<\/strong><\/a><\/td>Financial ratio analysis<\/strong><\/a><\/td><\/tr>Difference between transaction and event<\/strong><\/a><\/td>Transactions<\/strong><\/a><\/td>Users of Accounting<\/strong><\/a><\/td>Ratio analysis<\/strong><\/a><\/td><\/tr>Limitation of Accounting<\/strong><\/a><\/td>Capital Expenditure<\/strong><\/a><\/td>Instalment System<\/strong><\/a><\/td>Difference between consignment and sale<\/strong><\/a><\/td><\/tr>Book Keeping<\/strong><\/a><\/td>Revenue Expenditure<\/strong><\/a><\/td>Reserves Accounting<\/strong><\/a><\/td>Abnormal loss vs normal loss in consignment<\/strong><\/a><\/td><\/tr>Accountancy<\/strong><\/a><\/td>Difference between capital and revenue expenditure<\/strong><\/a><\/td>Provisions <\/strong><\/a><\/td>Treatment of loss on consignment<\/strong><\/a><\/td><\/tr>Accounting as science or an art<\/strong><\/a><\/td>Accounting Equation<\/strong><\/a><\/td>Single entry system<\/strong><\/a><\/td>Accounting treatment of consignment<\/strong><\/a><\/td><\/tr>Book Keeping vs accounting<\/strong><\/a><\/td>Deferred Revenue Expenditure<\/strong><\/a><\/td>Difference between statement of affairs and balance sheet<\/strong><\/a><\/td>Joint venture vs consignment<\/strong><\/a><\/td><\/tr>Book keeping vs accountancy<\/strong><\/a><\/td>Capital receipt<\/strong><\/a><\/td>IFRS<\/strong><\/a><\/td>Departmental Accounting<\/strong><\/a><\/td><\/tr>Accounting vs accountancy<\/strong><\/a><\/td>Revenue receipt<\/strong><\/a><\/td>Balance Sheet<\/strong><\/a><\/td>Methods of departmental accounting<\/strong><\/a><\/td><\/tr>Basis of Accounting<\/strong><\/a><\/td>Difference between capital and revenue receipt<\/strong><\/a><\/td>Profit and loss Account<\/strong><\/a><\/td>Allocation of expenses in departmental accounting<\/strong><\/a><\/td><\/tr>Branches of accounting<\/strong><\/a><\/td>Difference between accounting concepts and conventions<\/strong><\/a><\/td>Trading Account<\/strong><\/a><\/td>Inter-departmental transfers<\/strong><\/a><\/td><\/tr>Cash and mercantile system of accounting<\/strong><\/a><\/td>Accounting Standards<\/strong><\/a><\/td>Voyage Account<\/strong><\/a><\/td>Different types of branches<\/strong><\/a><\/td><\/tr>Accounting Principles<\/strong><\/a><\/td>Objectives of Accounting<\/strong><\/a><\/td>
IDEAL CASH RATIO<\/strong><\/p>\n\n\n\nThe ideal standard for this ratio is 0.5:1 i.e. 50%. This\nmeans Rs. 1 worth Cash assets are considered adequate to pay Rs. 2 worth\ncurrent liabilities in time as all the creditors are not expected to demand\ncash at the same time and then cash may also be realized from debtors and\ninventories.<\/p>\n\n\n\nEXAMPLE: <\/strong>Suppose\nthe firm has following assets and liabilities: <\/p>\n\n\n\n\n Goodwill\n <\/td>\n 50,000\n <\/td>\n Cash at bank\n <\/td>\n 30,000\n <\/td><\/tr>\n Plant and machinery\n <\/td>\n 4,00,000\n <\/td>\n Inventories\n <\/td>\n 75,000\n <\/td><\/tr>\n Trade investments\n <\/td>\n 2,00,000\n <\/td>\n Bank overdraft\n <\/td>\n 70,000\n <\/td><\/tr>\n Marketable securities\n <\/td>\n 1,50,000\n <\/td>\n Sundry creditors\n <\/td>\n 60,000\n <\/td><\/tr>\n Bills receivables\n <\/td>\n 40,000\n <\/td>\n Bills payable\n <\/td>\n 90,000\n <\/td><\/tr>\n Cash in hand\n <\/td>\n 45,000\n <\/td>\n Outstanding expenses\n <\/td>\n 30,000\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nCash Ratio= Cash Assets\/ Current Liabilities<\/p>\n\n\n\nCash assets= marketable securities+ cash in hand+ cash at\nbank<\/p>\n\n\n\n=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n=2,25,000<\/p>\n\n\n\nCurrent Liabilities= Bank Overdraft+ Sundry Creditors +\nBills payable+ Outstanding expenses<\/p>\n\n\n\n= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n= 2,50,000<\/p>\n\n\n\nCash ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n= 0.9.<\/p>\n\n\n\n\nCONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\nAlso Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td><\/tr>Accounting<\/strong><\/a><\/td>Non profit organisation<\/strong><\/a><\/td>Depreciation<\/strong><\/a><\/td>Liquidity ratios<\/strong><\/a><\/td><\/tr>Nature of Accounting<\/strong><\/a><\/td>Receipts and Payments Account<\/strong><\/a><\/td>Depreciation Accounting<\/strong><\/a><\/td>Acid Test Ratio<\/strong><\/a><\/td><\/tr>Benefits of Accounting<\/strong><\/a><\/td>Scope of accounting<\/strong><\/a><\/td>Hire Purchase Accounting<\/strong><\/a><\/td>Cash Ratio<\/strong><\/a><\/td><\/tr>Difference between cost accounting and financial accounting<\/strong><\/a><\/td>Financial accounting, cost accounting and management accounting<\/strong><\/a><\/td>Difference between hire purchase and instalment system<\/strong><\/a><\/td>Financial ratio analysis<\/strong><\/a><\/td><\/tr>Difference between transaction and event<\/strong><\/a><\/td>Transactions<\/strong><\/a><\/td>Users of Accounting<\/strong><\/a><\/td>Ratio analysis<\/strong><\/a><\/td><\/tr>Limitation of Accounting<\/strong><\/a><\/td>Capital Expenditure<\/strong><\/a><\/td>Instalment System<\/strong><\/a><\/td>Difference between consignment and sale<\/strong><\/a><\/td><\/tr>Book Keeping<\/strong><\/a><\/td>Revenue Expenditure<\/strong><\/a><\/td>Reserves Accounting<\/strong><\/a><\/td>Abnormal loss vs normal loss in consignment<\/strong><\/a><\/td><\/tr>Accountancy<\/strong><\/a><\/td>Difference between capital and revenue expenditure<\/strong><\/a><\/td>Provisions <\/strong><\/a><\/td>Treatment of loss on consignment<\/strong><\/a><\/td><\/tr>Accounting as science or an art<\/strong><\/a><\/td>Accounting Equation<\/strong><\/a><\/td>Single entry system<\/strong><\/a><\/td>Accounting treatment of consignment<\/strong><\/a><\/td><\/tr>Book Keeping vs accounting<\/strong><\/a><\/td>Deferred Revenue Expenditure<\/strong><\/a><\/td>Difference between statement of affairs and balance sheet<\/strong><\/a><\/td>Joint venture vs consignment<\/strong><\/a><\/td><\/tr>Book keeping vs accountancy<\/strong><\/a><\/td>Capital receipt<\/strong><\/a><\/td>IFRS<\/strong><\/a><\/td>Departmental Accounting<\/strong><\/a><\/td><\/tr>Accounting vs accountancy<\/strong><\/a><\/td>Revenue receipt<\/strong><\/a><\/td>Balance Sheet<\/strong><\/a><\/td>Methods of departmental accounting<\/strong><\/a><\/td><\/tr>Basis of Accounting<\/strong><\/a><\/td>Difference between capital and revenue receipt<\/strong><\/a><\/td>Profit and loss Account<\/strong><\/a><\/td>Allocation of expenses in departmental accounting<\/strong><\/a><\/td><\/tr>Branches of accounting<\/strong><\/a><\/td>Difference between accounting concepts and conventions<\/strong><\/a><\/td>Trading Account<\/strong><\/a><\/td>Inter-departmental transfers<\/strong><\/a><\/td><\/tr>Cash and mercantile system of accounting<\/strong><\/a><\/td>Accounting Standards<\/strong><\/a><\/td>Voyage Account<\/strong><\/a><\/td>Different types of branches<\/strong><\/a><\/td><\/tr>Accounting Principles<\/strong><\/a><\/td>Objectives of Accounting<\/strong><\/a><\/td>
The ideal standard for this ratio is 0.5:1 i.e. 50%. This\nmeans Rs. 1 worth Cash assets are considered adequate to pay Rs. 2 worth\ncurrent liabilities in time as all the creditors are not expected to demand\ncash at the same time and then cash may also be realized from debtors and\ninventories.<\/p>\n\n\n\n
EXAMPLE: <\/strong>Suppose\nthe firm has following assets and liabilities: <\/p>\n\n\n\n\n Goodwill\n <\/td>\n 50,000\n <\/td>\n Cash at bank\n <\/td>\n 30,000\n <\/td><\/tr>\n Plant and machinery\n <\/td>\n 4,00,000\n <\/td>\n Inventories\n <\/td>\n 75,000\n <\/td><\/tr>\n Trade investments\n <\/td>\n 2,00,000\n <\/td>\n Bank overdraft\n <\/td>\n 70,000\n <\/td><\/tr>\n Marketable securities\n <\/td>\n 1,50,000\n <\/td>\n Sundry creditors\n <\/td>\n 60,000\n <\/td><\/tr>\n Bills receivables\n <\/td>\n 40,000\n <\/td>\n Bills payable\n <\/td>\n 90,000\n <\/td><\/tr>\n Cash in hand\n <\/td>\n 45,000\n <\/td>\n Outstanding expenses\n <\/td>\n 30,000\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nCash Ratio= Cash Assets\/ Current Liabilities<\/p>\n\n\n\nCash assets= marketable securities+ cash in hand+ cash at\nbank<\/p>\n\n\n\n=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n=2,25,000<\/p>\n\n\n\nCurrent Liabilities= Bank Overdraft+ Sundry Creditors +\nBills payable+ Outstanding expenses<\/p>\n\n\n\n= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n= 2,50,000<\/p>\n\n\n\nCash ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n= 0.9.<\/p>\n\n\n\n\nCONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\nAlso Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td>Also Study<\/strong><\/td><\/tr>Accounting<\/strong><\/a><\/td>Non profit organisation<\/strong><\/a><\/td>Depreciation<\/strong><\/a><\/td>Liquidity ratios<\/strong><\/a><\/td><\/tr>Nature of Accounting<\/strong><\/a><\/td>Receipts and Payments Account<\/strong><\/a><\/td>Depreciation Accounting<\/strong><\/a><\/td>Acid Test Ratio<\/strong><\/a><\/td><\/tr>Benefits of Accounting<\/strong><\/a><\/td>Scope of accounting<\/strong><\/a><\/td>Hire Purchase Accounting<\/strong><\/a><\/td>Cash Ratio<\/strong><\/a><\/td><\/tr>Difference between cost accounting and financial accounting<\/strong><\/a><\/td>Financial accounting, cost accounting and management accounting<\/strong><\/a><\/td>Difference between hire purchase and instalment system<\/strong><\/a><\/td>Financial ratio analysis<\/strong><\/a><\/td><\/tr>Difference between transaction and event<\/strong><\/a><\/td>Transactions<\/strong><\/a><\/td>Users of Accounting<\/strong><\/a><\/td>Ratio analysis<\/strong><\/a><\/td><\/tr>Limitation of Accounting<\/strong><\/a><\/td>Capital Expenditure<\/strong><\/a><\/td>Instalment System<\/strong><\/a><\/td>Difference between consignment and sale<\/strong><\/a><\/td><\/tr>Book Keeping<\/strong><\/a><\/td>Revenue Expenditure<\/strong><\/a><\/td>Reserves Accounting<\/strong><\/a><\/td>Abnormal loss vs normal loss in consignment<\/strong><\/a><\/td><\/tr>Accountancy<\/strong><\/a><\/td>Difference between capital and revenue expenditure<\/strong><\/a><\/td>Provisions <\/strong><\/a><\/td>Treatment of loss on consignment<\/strong><\/a><\/td><\/tr>Accounting as science or an art<\/strong><\/a><\/td>Accounting Equation<\/strong><\/a><\/td>Single entry system<\/strong><\/a><\/td>Accounting treatment of consignment<\/strong><\/a><\/td><\/tr>Book Keeping vs accounting<\/strong><\/a><\/td>Deferred Revenue Expenditure<\/strong><\/a><\/td>Difference between statement of affairs and balance sheet<\/strong><\/a><\/td>Joint venture vs consignment<\/strong><\/a><\/td><\/tr>Book keeping vs accountancy<\/strong><\/a><\/td>Capital receipt<\/strong><\/a><\/td>IFRS<\/strong><\/a><\/td>Departmental Accounting<\/strong><\/a><\/td><\/tr>Accounting vs accountancy<\/strong><\/a><\/td>Revenue receipt<\/strong><\/a><\/td>Balance Sheet<\/strong><\/a><\/td>Methods of departmental accounting<\/strong><\/a><\/td><\/tr>Basis of Accounting<\/strong><\/a><\/td>Difference between capital and revenue receipt<\/strong><\/a><\/td>Profit and loss Account<\/strong><\/a><\/td>Allocation of expenses in departmental accounting<\/strong><\/a><\/td><\/tr>Branches of accounting<\/strong><\/a><\/td>Difference between accounting concepts and conventions<\/strong><\/a><\/td>Trading Account<\/strong><\/a><\/td>Inter-departmental transfers<\/strong><\/a><\/td><\/tr>Cash and mercantile system of accounting<\/strong><\/a><\/td>Accounting Standards<\/strong><\/a><\/td>Voyage Account<\/strong><\/a><\/td>Different types of branches<\/strong><\/a><\/td><\/tr>Accounting Principles<\/strong><\/a><\/td>Objectives of Accounting<\/strong><\/a><\/td>
Cash Ratio= Cash Assets\/ Current Liabilities<\/p>\n\n\n\n
Cash assets= marketable securities+ cash in hand+ cash at\nbank<\/p>\n\n\n\n
=1,50,000+ 45,000+ 30,000<\/p>\n\n\n\n
=2,25,000<\/p>\n\n\n\n
Current Liabilities= Bank Overdraft+ Sundry Creditors +\nBills payable+ Outstanding expenses<\/p>\n\n\n\n
= 70,000+ 60,000+ 90,000+30,000<\/p>\n\n\n\n
= 2,50,000<\/p>\n\n\n\n
Cash ratio= 2,25,000\/ 2,50,000<\/p>\n\n\n\n
= 0.9.<\/p>\n\n\n\n