29.9. Quick assets are cash and include other assets which can quickly be
converted into cash. Quick assets do not include stock or inventories.How quickly can liabilities be met?
To obtain answers, we have to use current ratio and quick ratio.
It is always safer to have the current ratio on the positive side to maintain a higher degree
of liquidity. This has to be specifically stated in an accounting policy. Based on an
analysis using current and quick ratios, the management may think of financial re-
planning.
- Profit and Loss Account (Income Statement)
30.1. The balance sheet must be supplemented by the Profit and Loss Account.
The Profit and Loss Account shows :? Gross Profit
? Operating Profit
? Profit before tax (PBT)
? Net Profit after tax (NPAT)Gross Profit (G.P.)
Cost of sales includes money spent on raw materials, wages and factory overhead costs.
Operating Profit (OP)
OP = GP - Selling administrative and general expenses
Selling administrative and general expenses includes office staff, stationery, telephone,
sales force etc.,
Profit Before Tax (PBT)
PBT = OP - Non-operating expenses.
Non-operating expenses include interest payment on loans, losses on the sale of
investments and fixed assets etc.
Net Profit after tax (NPAT)
NPAT = PBT - Income Tax