Page 151 - Book-keeping for Secondary Schools Student’s Book Form One

Basic financial statements

for it to be turned into cash. The length Example 7.5
of time it takes for an asset to be turned Listing of assets and liabilities from the
into cash is an indicator of liquidity. most liquid to the least liquid can be
Cash is considered to be the most liquid illustrated as follows:
asset. This means that assets that take a
shorter time to be converted into cash are Assets
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considered to be more liquid than those Cash in hand
that take a longer time. Cash at bank

Accounts receivable
Liquidity: It is a measure of the
ability of a business to meet its Inventory
financial obligations as they fall due. Furniture
One of the indicators of liquidity is Plant and machinery
time spent to convert its assets into Building
cash. Land

The first approach commonly used to Liabilities
presenting the assets and liabilities is to Bank overdraft
list the assets and liabilities in order of Accounts payable
liquidity. The second method involves Long term loans
the grouping of assets and liabilities by Example 7.6

considering whether they are current or Listing of assets and liabilities from the
non-current items. least liquid to the most liquid ones can be

illustrated as follows:
Listing in the order of liquidity
This approach is mostly used by financial Assets:
Land
institutions such as banks. Using this Building
approach, the business lists its assets Plant and machinery
starting from the most liquid assets Furniture
or liabilities to the least liquid ones. Inventory
Alternatively, the assets and liabilities Accounts receivable
can be listed starting with the least Cash at bank
liquid to the most liquid ones. Under this Cash in hand

approach, liabilities will be listed starting
with those that take the shortest time to Liabilities:
be settled to the ones that take the longest Long term loans
time to be settled, and vice versa. Accounts payable

Bank overdraft

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