##### help calculate the current ratio for a company

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Mens clothes is a retailer of mens clothing, earned a net profit of \$77000 in 2012.  knowing this, calculate the current ratio with info below:

cash-29000     inventory-79000     accounts receivable-39000     prepaid insurance-3000

taxes payable-29000     accounts payable-21000     land-90000     retained earnings-97000

capital stock-50000     longterm notes payable-43000

** I keep coming up with multiple answers, 2.16 and 3.0, based off the assets and liabilities

Sep 10th, 2015

Before you start grouping the current assets and liabilities its important to put aside Retained earnings and capital stock, they are the owners equity. its important to group first before calculating the current ratio

cash-29000=asset     inventory-79000=asset

accounts receivable-39000 =asset

prepaid insurance-3000=asset

taxes payable-29000= liability

accounts payable-21000 =liability

land-90000 =asset

retained earnings-97000=owners equity

capital stock-50000  =owners equity

longterm notes payable-43000. Liabilities

just a minute and i will provide a well explained answer.. please

Sep 10th, 2015

Current Ratio = current assets / current liabilities

240,000/93,000

=2.6

Sep 10th, 2015

That was different than what i came up with, is there a difference between a liability and a current liability?

Sep 10th, 2015

if a company's operations are more than one year then those  which are treated in a fiscal year are  Current liabilities. they  include debts you owe that you expect to pay within the next 12 months. Liability is the general term reffering to total liabilities which is

liabilities=current liabilities +long term liabilities

Sep 10th, 2015

Sep 10th, 2015

So if we just took the current assets and liabilities, would that change the outcome by chance?  with what you mentioned above, i now have

current assets = 150000

current liabilities = 50000

so a current ratio of 3 to 1?

Sep 10th, 2015

Current ratio = current assets / current liabilities

150,000/50,000

3.0

Sep 10th, 2015

thank you very much for the explanation - i was confused with current assets/liabilities and long term assets and liabilities.  thanks again

Sep 10th, 2015

YOUR WELCOME. MAKE SURE TO INVITE ME  ON A QUESTION

Sep 10th, 2015

absolutely will do

Sep 10th, 2015

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Sep 10th, 2015
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Sep 10th, 2015
Oct 22nd, 2017
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