Sections:

Financial Statements of Sole Proprietorship, Page 23

Key Terms

  • Current Assets: Current Assets are those assets which can be converted into cash within a maximum period of one year (or) during the normal operating cycle of the business. 
  • Current Liabilities: Current Liabilities are the debts which are to be paid within a year, or paid during the normal operating cycle of the business. 
  • Current Ratio: The Current Ratio is the relationship between Current Assets and Current Liabilities. 
  • Quick Ratio: The Quick Ratio is the relationship between total quick assets and the total Current Liabilities. 
  • Profitability Ratio: The ability of a business to earn income is called profitability. 
  • Ratio Analysis: Ratio analysis is finding the relation between the two variables taken from the financial statements. 
  • Working Capital: Working capital is the difference between Current Assets and Current Liabilities. 
  • Liquidity: Liquidity refers to the ability with which an asset can be changed into cash.