A discussion on current ratio for schedule 3 and schedule 6 returns

Problem statement: here we look at the liquidity ratios and how the CFO and CEO needs an accurate guidance regarding the same. We shall also look at the variations that we have had in our projects regarding the calculation of various liquidity ratios. The sample case is for service industry. For other industries inventory needs ot be taken into account.

2.) We shall also look at how to calculate the liquidity ratios automatically using the product.

 Current ratios are normally calculated using the following formulae: current assets/current liabilities. For the same we use the trial balance extract using the product for unlimited companies.

Trial balance extract shall be through the extract 'Ledger Balance'[matching with the Tally object name]. The added methods for the extract are for ledger heirarchy flattening.

Simple current ratio is calculated by using the level2 in our product module(after ledger flattening) for current  assets and current liabilities

1.) Variation 1 by CFOs and CEOs: Many a times the current assets have a large portion of sundry debtors. These sundry debtors could have a large account of receivables.For accurate calculation these CFOs and CEOs desires that based debts be taken out.

For the same one needs to go to level 3 and other entries at level 4 and beyond need to be taken out.

Method of finding the bad debts:(Bill payable and bill receivable and ledger flattening)

2.) Handling wrong group entries for the current assets and current liabilities: many a times the group heirarchy in the source system or the Excel report needs to be changed. The same can be handled through ledger flattening.

3.) Cash ratio: for calculating the cash ratios we look at the cash balances specifically with the ledger group of 'current assets' The cash balances shall include cash-in-hand and all the bank accounts(the bank od accounts are part of the current liability).

Fitting the current assets in the schedule 6 balance sheet:

Inventories is closing stock-opening stock

Trade receivables shall correspond to Sundry debtors(level 3)

Cash and cash equivalents shall correspond to cash-in-hand and bank accounts level 3

Short term loas and advances shall correspond to Loans and Advances(level 2)

In this way  we have a better understanding of current ratio and filling up the sschedule 6 portion of the balance sheet.

Name: Apoorv Chaturvedi

email: support@turbodatatool.com;support@mndatasolutions.com

Phone:+91-8802466356