Analysis of Transactions and Preparing Statements, Coursework Example

Kumar Company is a medium sized company depending on the size of its expenses and incomes and also the size of the transactions carried out in the month of April. The equation approach is the process of determining the total amount of assets and liabilities and their relationship through the accounting equation which is assets=liabilities + owners equity. (Morrison, 2010) The Kumar Company has performed well in the month of April because they have made a profit. They have also generated some revenue which shows a good performance. The financial position of the company can be shown by the current ratio

Current ratio=current assets/current liabilities

182,000/78,000=2.2

This means that the company is financially stable because it is able to meet its obligations and cover its short term debts. The company is therefore in a good financial position

If income was measured in cash basis, Kumar Company would report cash revenue of $155,000. The cash basis provides a better measurement of revenue because the cash has already been received as compared to the accruals basis where the money has not been received and there could emerge bad debts and other issues after computing the profit (Morrison, 2010).

References

Morrison, M. (2010). Advanced Accounting-transaction analysis. New York. McGraw Hill Press