UT Knoxville ACCT 200 - Current Ratio
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ACCT 200 Lecture 7 Outline of Last Lecture I. RemindersII. Accrued RevenueIII. Deferred RevenueIV. Accrued ExpenseV. Deferred ExpenseOutline of Current Lecture I. AdjustmentsII. DepreciationIII. ClassificationIV. Current RatioV. Quick RatioCurrent LectureI. End of Period Adjustments: these are needed to match revenue with expense due to thethings we talked about last class. These are:a. Revenue can be earned before cash is received (accrued rev.)b. Revenue can be earned after cash is received (deferred rev.)c. Expense can be incurred before cash is paid (accrued exp.)d. Expense can be incurred after cash is paid (deferred exp.)II. Depreciation: this is the expensing of a fixed asset (land is the exception)a. This is either caused by physical wear and tear of the asset, or by functional depreciation.b. This is not the decline in market value of the asset.c. This does not involve a cash transaction.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.d. To keep up with depreciation, you will have a Depreciation Expense account and an Accumulated Depreciation account.e. Example: You buy a computer for your company in January 2010 for $1000. That computer is going to last for 5 years of use. Although you have already paid the $1000 cash for it, when you divide it up, it is like paying $200 a year for 5 years. At the end of 2010, you have used up one year of your assetthis goes in the Depreciation Expense. (2010 Depreciation Expense: $200; 2010 Accumulated Depreciation: $200). At the end of 2011, you have used up another year of the computer’s functionality, so you used up $200 worth of your asset that year. However, overall, you have now used up 2 years or $400 of your asset. This is the Accumulated Depreciation. (2011 Depreciation Expense: $200; 2011 Accumulated Depreciation: $400). III. Classificationa. Current Assets—assets that will generate revenue within one yearb. Long term assets—assets that will help generate revenue over a period longer than one yearc. Current liabilities—debts that will be satisfied within one yeard. Long term liabilities—debt that will be satisfied over a period longer than one yeare. Equity—owners’ claims on assetsIV. Current ratioa. Current ratio= Current Assets ÷ Current LiabilitiesV. Quick Ratioa. Quick Ratio= Quick Assets ÷ Current Liabilitiesb. Quick assets consist of cash, temporary investments, and receivablesc. This basically measures the immediate debt paying ability of the company. A highquick ratio shows that a company is more prepared to pay off

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