Tag Archives | liabilities

Working Capital

What is Working Capital?

Formula: Current Assets – Current Liabilities = Working Capital

Working Capital (WC) is the difference between Current Assets versus Current Liabilities. (Current Assets are those assets that will be turned into cash within one year. Current Liabilities are those liabilities due within one year) This calculation represents the liquidity that a company has to meet its obligations coming due in the next 12 months. Though the amount should be positive, in times of distress it can be a negative amount.

Often used as a management tool, track the change in WC on a weekly basis. A company that is generating profits is usually increasing their WC. Conversely, declining profits often consume WC.

See Flash Report.

See Also:
Balance Sheet
How to collect accounts receivable
Factoring
Quick Ratio Analysis
Current Ratio Analysis
Financial Ratios

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Standard Chart of Accounts

Standard Chart of Accounts

In accounting, a standard chart of accounts is a numbered list of the accounts that comprise a company’s general ledger. The company chart of accounts is basically a filing system for categorizing all of a company’s accounts as well as classifying all transactions according to the accounts they affect. The chart of accounts list of categories may include the following:

(See the following chart of accounts example below).

The standard chart of accounts is also called the uniform chart of accounts. A chart of accounts template is used to prepare the basic chart of accounts for any subsidiary companies or related entities in order to make consolidation easier.

Furthermore, a standard chart of accounts is organized according to a numerical system. Thus, each major category will begin with a certain number, and then the sub-categories within that major category will all begin with the same number. For example, if assets are classified by numbers starting with the digit 1, then cash accounts might be labeled 101, accounts receivable might be labeled 102, inventory might be labeled 103, and so on. If liabilities accounts are classified by numbers starting with the digit 2, then accounts payable might be labeled 201, short-term debt might be labeled 202, and so on.

Number of Accounts Needed

Depending on the size of the company, the chart of accounts may include either few dozen accounts or a few thousand accounts. Depending on the sophistication of the company, the chart of accounts can be either paper-based or computer-based. In conclusion, the chart of account is useful for analyzing past transactions and using historic data to forecast future trends.

Below is an example of chart of accounts that may be used to set up the general ledger of most companies. In addition, you may customize your COA to your industry by adding to the Inventory, Revenue and Cost of Goods Sold sections to the sample chart of accounts.

SAMPLE CHART OF ACCOUNTS

1000 ASSETS

1010 CASH Operating Account
1020 CASH Debitors
1030 CASH Petty Cash

1200 RECEIVABLES

1210 A/REC Trade
1220 A/REC Trade Notes Receivable
1230 A/REC Installment Receivables
1240 A/REC Retainage Withheld
1290 A/REC Allowance for Uncollectible Accounts

1300 INVENTORIES

1310 INV – Reserved
1320 INV – Work-in-Progress
1330 INV – Finished Goods
1340 INV – Reserved
1350 INV – Unbilled Cost & Fees
1390 INV – Reserve for Obsolescence

1400 PREPAID EXPENSES & OTHER CURRENT ASSETS

1410 PREPAID – Insurance
1420 PREPAID – Real Estate Taxes
1430 PREPAID – Repairs & Maintenance
1440 PREPAID – Rent
1450 PREPAID – Deposits

1500 PROPERTY PLANT & EQUIPMENT

1510 PPE – Buildings
1520 PPE – Machinery & Equipment
1530 PPE – Vehicles
1540 PPE – Computer Equipment
1550 PPE – Furniture & Fixtures
1560 PPE – Leasehold Improvements

1600 ACCUMULATED DEPRECIATION & AMORTIZATION

1610 ACCUM DEPR Buildings
1620 ACCUM DEPR Machinery & Equipment
1630 ACCUM DEPR Vehicles
1640 ACCUM DEPR Computer Equipment
1650 ACCUM DEPR Furniture & Fixtures
1660 ACCUM DEPR Leasehold Improvements

1700 NON – CURRENT RECEIVABLES

1710 NCA – Notes Receivable
1720 NCA – Installment Receivables
1730 NCA – Retainage Withheld

1800 INTERCOMPANY RECEIVABLES

 

1900 OTHER NON-CURRENT ASSETS

1910 Organization Costs
1920 Patents & Licenses
1930 Intangible Assets – Capitalized Software Costs

2000 LIABILITIES

 

2100 PAYABLES

2110 A/P Trade
2120 A/P Accrued Accounts Payable
2130 A/P Retainage Withheld
2150 Current Maturities of Long-Term Debt
2160 Bank Notes Payable
2170 Construction Loans Payable

2200 ACCRUED COMPENSATION & RELATED ITEMS

2210 Accrued – Payroll
2220 Accrued – Commissions
2230 Accrued – FICA
2240 Accrued – Unemployment Taxes
2250 Accrued – Workmen’s Comp
2260 Accrued – Medical Benefits
2270 Accrued – 401 K Company Match
2275 W/H – FICA
2280 W/H – Medical Benefits
2285 W/H – 401 K Employee Contribution

2300 OTHER ACCRUED EXPENSES

2310 Accrued – Rent
2320 Accrued – Interest
2330 Accrued – Property Taxes
2340 Accrued – Warranty Expense

2500 ACCRUED TAXES

2510 Accrued – Federal Income Taxes
2520 Accrued – State Income Taxes
2530 Accrued – Franchise Taxes
2540 Deferred – FIT Current
2550 Deferred – State Income Taxes

2600 DEFERRED TAXES

2610 D/T – FIT – NON CURRENT
2620 D/T – SIT – NON CURRENT

2700 LONG-TERM DEBT

2710 LTD – Notes Payable
2720 LTD – Mortgages Payable
2730 LTD – Installment Notes Payable

2800 INTERCOMPANY PAYABLES

 

2900 OTHER NON CURRENT LIABILITIES

3000 OWNERS EQUITIES

3100 Common Stock
3200 Preferred Stock
3300 Paid in Capital
3400 Partners Capital
3500 Member Contributions
3900 Retained Earnings

4000 REVENUE

4010 REVENUE – PRODUCT 1
4020 REVENUE – PRODUCT 2
4030 REVENUE – PRODUCT 3
4040 REVENUE – PRODUCT 4
4600 Interest Income
4700 Other Income
4800 Finance Charge Income
4900 Sales Returns and Allowances
4950 Sales Discounts

5000 COST OF GOODS SOLD

5010 COGS – PRODUCT 1
5020 COGS – PRODUCT 2
5030 COGS – PRODUCT 3
5040 COGS – PRODUCT 4
5700 Freight
5800 Inventory Adjustments
5900 Purchase Returns and Allowances
5950 Reserved

6000 – 7000 OPERATING EXPENSES

6010 Advertising Expense
6050 Amortization Expense
6100 Auto Expense
6150 Bad Debt Expense
6200 Bank Charges
6250 Cash Over and Short
6300 Commission Expense
6350 Depreciation Expense
6400 Employee Benefit Program
6550 Freight Expense
6600 Gifts Expense
6650 Insurance – General
6700 Interest Expense
6750 Professional Fees
6800 License Expense
6850 Maintenance Expense
6900 Meals and Entertainment
6950 Office Expense
7000 Payroll Taxes
7050 Printing
7150 Postage
7200 Rent
7250 Repairs Expense
7300 Salaries Expense
7350 Supplies Expense
7400 Taxes – FIT Expense
7500 Utilities Expense
7900 Gain/Loss on Sale of Assets

 

See Also:
Chart of Accounts (COA)
Problems in Chart of Accounts Design
Complex Number for SGA Expenses

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Accounts Payable Turnover Analysis

See Also:
Accounts Receivable Turnover
Days Payable Outstanding
Financial Ratios
Operating Cycle Analysis

Accounts Payable Turnover Definition

The accounts payable turnover ratio indicates how many times a company pays off its suppliers during an accounting period. It also measures how a company manages paying its own bills. A higher ratio is generally more favorable as payables are being paid more quickly. When placed on a trend graph accounts payable turnover analysis becomes simplified: the line raises and lowers just as the ratio does. Common adaptations used to calculate accounts payable turnover yield results like accounts payable turnover ratio in days, A/P turnover in days, and more. A useful tool in managing and measuring the efficiency of paying bills is a Flash Report.

Accounts Payable Turnover Formula

A solid grasp of the accounts payable turnover ratio formula is of utmost importance to any business person. Though some ratios may or may not apply to different business models everyone has bills to pay. The need to understand A/P turnover is universal.

Accounts payable turnover = Cost of goods sold / Average accounts payable

Or = Credit purchases / average accounts payable.

Purchases = Cost of goods sold + ending inventory – beginning inventory.

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Accounts Payable Turnover Calculation

Calculate accounts payable turnover by dividing total purchases made from suppliers by the average accounts payable amount during the same period.

Average Accounts payable is the average of the opening and closing balances for Accounts Payable.

In real life, sometimes it is hard to get the number of how much of the purchases were made on credit. Investors can assume that all purchases are credit purchase as a shortcut. As a result, it is important to remain consistent if the ratio is compared to that of other companies.

For example, assume annual purchases are $100,000; accounts payable at the beginning is $25,000; and accounts payable at the end of the year is $15,000.

The accounts payable turnover is: 100,000 / ((25,000 + 15,000)/2) = 5 times

An accounts payable turnover days formula is a simple next step.

365 days per year / 5 times per year = 73 days

Slightly different methods are applied to calculate A/P days, A/P turnover ratio in days, and other important metrics. This article outlines the fundamentals of how to calculate A/P turnover. For more ways to improve your cash flow, download the free 25 Ways to Improve Cash Flow whitepaper.

accounts payable turnover analysis

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accounts payable turnover analysis

Resources

For statistical information about industry financial ratios, please go to the following websites: www.bizstats.com and www.valueline.com.

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Accounts Payable

See Also:
Account Reconciliation
Accounts Payable Turnover
Accounts Receivable
Accounts Receivable Turnover
Cost Volume Profit Definition
Unearned Revenue

Accounts Payable Defined

Accounts payable is a current liability account on the balance sheet. The account represents the company’s short-term financial obligations to creditors and suppliers – goods and services the company has already received but not yet paid for. It is considered a short-term liabilities account because the payables are due within one year or one operating cycle.

Money in accounts payable is essentially an interest-free loan from suppliers. Often, suppliers offer a discount for early payment. When deciding whether or not to pay early in order to get the discount, it is necessary to compare the value of the discount to the company’s borrowing costs.

If the benefit of the discount exceeds the cost of borrowing, then the company is better off making the early payment. But if the benefit of the discount is less than the cost of borrowing, then the company is better off waiting until the payable is due.

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