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What does the cash ratio help determine, and how is it calculated?

Short Answer

Expert verified

To determine the ability of the company to pay current liabilities.

Step by step solution

01

Definition of cash ratio

The cash ratio is the ratio used to determine the ability of the company to pay its current liabilities from cash.

02

Cash ratio determines

The cash ratio is a very important ratio for the company because, with the help of this ratio, its ability is determined to pay its current liabilities from cash. The cash ratio shows the ability to pay current liabilities without selling its asset.

The cash ratio is calculated by using this formula:

Cashratio=Cash+CashEquivalentsCurrentLiabilities

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Most popular questions from this chapter

Correcting internal control weaknesses

Each of the following situations has an internal control weakness.

a. Upside-Down Applications develops custom programs to customersโ€™ specifications.

Recently, development of a new program stopped while the programmers

redesigned Upside-Downโ€™s accounting system. Upside-Downโ€™s accountants could

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b. Norma Rottler has been your trusted employee for 24 years. She performs all cashhandling

and accounting duties. Norma just purchased a new luxury car and a new

home in an expensive suburb. As owner of the company, you wonder how she

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source of outside income.

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d. The office supply company where Pet Grooming Goods purchases sales receipts

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Requirements

1. Identify the missing internal control characteristics in each situation.

2. Identify the possible problem caused by each control weakness.

3. Propose a solution to each internal control problem.

The Scott Sun & Shade Company had the following financial data at December 31, 2018:

Cash and cash equivalents $ 60,000

Total current liabilities 75,000

What is the cash ratio as of December 31, 2018, for Scott Sun & Shade?

List internal control procedures related to e-commerce.

Preparing a bank reconciliation and journal entries

The October 31 bank statement of Wyndhamโ€™s Healthcare has just arrived from State

Bank. To prepare the bank reconciliation, you gather the following data:

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b. The bank statement includes two charges for NSF checks from customers. One is

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237 \) 120

288 140

291 570

294 570

295 30

296 110

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h. The bank statement includes a \)750 deduction for a check drawn by Multi-State

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Identifying internal control weakness in cash receipts

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Requirements

1. Identify the internal control weakness in this situation.

2. Who should record sales allowances?

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