Page 135 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes 365 days
Creditors Velocity =
Creditors Turnover Ratio
Credit Purchases
Creditors Turnover Ratio =
Bills Payable + Sundry Creditors
1,00,000
=
16,000 + Sundry Creditors
The next step is to find out the sundry creditors, the reversal process to be adopted
365 days
73 days =
Creditors Turnover Ratio
365 days
Creditors Turnover Ratio = = 5 times
73 days
The next step is to substitute the found value in the equation of creditors turnover ratio

1,00,000
16,000+ Sundry creditors =
5

Sundry Creditors = 20,000 – 16,000 = 4,000

Task From the following particulars, prepare trading, profit and loss account
and a balance sheet.
Current ratio 3

Liquid ratio 1.8
Bank overdraft 20,000
Working capital 2,40,000
Debtors velocity 1 month

Gross profit ratio 20%
Proprietary ratio
(Fixed assets/share holders' fund) .9
Reserves and surpluses .25 of share capital
Opening stock 1,20,000; 8%

Debentures 3,60,000
Long term investments 2,00,000
Stock turnover ratio 10 times

Creditors velocity 1/2 month
Net profit to share capital 20%

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