Complete Summary and Solutions for Accounting Ratios – NCERT Class XII Accountancy, Chapter 5 – Meaning, Objectives, Types, Calculation, Interpretation, Limitations

Detailed summary and explanations of Chapter 5 'Accounting Ratios' from the NCERT Class XII Accountancy textbook, covering the meaning, objectives, advantages, limitations, various types of ratios including liquidity, solvency, activity, profitability ratios, their calculation methods, practical illustrations, and interpretation along with all NCERT questions and answers.

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Categories: NCERT, Class XII, Accountancy, Chapter 5, Accounting Ratios, Financial Analysis, Liquidity Ratios, Solvency Ratios, Activity Ratios, Profitability Ratios, Summary, Questions, Answers

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Accounting Ratios - Class 12 Accountancy Chapter 5 Ultimate Study Guide 2025

Full Chapter Summary & Detailed Notes - Accounting Ratios Class 12 NCERT

Overview & Key Concepts

Chapter Goal: Analyze financial statements via ratios for solvency, efficiency, profitability. Exam Focus: Types (4 functional), Formulas (e.g., Current=CA/CL), Illustrations 1-2, TYU-I T/F, Advantages/Limitations lists. 2025 Updates: Emphasis on inter-firm comparisons, real-time data. Fun Fact: Ratios simplify complex figures. Core Idea: Derived relationships from FS; interpret trends. Real-World: Investors use for decisions. Expanded: All subtopics point-wise with evidence (e.g., TYU-I), examples (e.g., Gross Profit 10%), debates (e.g., limitations like price changes).
Wider Scope: From meaning to types (Liquidity/Solvency/Activity/Profitability); sources: Pages 1-8+, Illustrations.
Expanded Content: Include solvency/activity/profitability tease; point-wise for recall; add 2025 relevance like inflation adjustments.

Introduction & Expansion Need

FS Analysis: Provides data for decisions; techniques: Comparative, Common Size, Trend, Ratios, Cash Flow.
Ratios Role: Assess solvency (pay debts), efficiency (resource use), profitability (earnings).
Objectives: Identify weak/strong areas, deeper analysis, cross-sectional, projections.
Expanded: Evidence: TYU-I claims; debates: Ratios indicative, not solutions; real: Post-2020 economic volatility.

Conceptual Diagram: Ratio Analysis Flow

Flow: FS Data → Calculate Ratios → Interpret (Liquidity/Solvency/etc.) → Compare (Intra/Inter) → Decisions/Projections. Ties to functional classification.

Why This Guide Stands Out

Comprehensive: All ratios formulas, proforma integrations; 2025 with limitations analysis, processes for calculations.

Meaning of Accounting Ratios

Definition: Mathematical relationship of 2+ accounting numbers (fraction/proportion/%/times).
Example: Gross Profit Ratio = (GP/Rev from Ops) x 100 = 10%; Inventory Turnover = 6 times.
Caveats: Depend on accurate FS; use related numbers (e.g., not Purchases/Furniture=3:1 irrelevant).
Expanded: Evidence: Derived, not absolute; real: Errors propagate.

Objectives of Ratio Analysis

5 Key: 1. Attention areas; 2. Improvement potentials; 3. Deeper P/L/S/E analysis; 4. Cross-sectional vs industry; 5. Projections/estimates.
Expanded: Technique: Regroup data arithmetically; needs FS rules understanding.

Advantages of Ratio Analysis

6 Key: 1. Efficacy of decisions; 2. Simplify complex figures; 3. Comparative trends; 4. Problem/bright spots; 5. SWOT; 6. Various comparisons (Intra/Inter/Standards).
Expanded: Indicative/whistle blower; e.g., trends for projections.

Limitations of Ratio Analysis

From FS: 1. Precision illusion (judgments/conventions); 2. Ignores price changes; 3. Quantitative only; 4. Accounting variations; 5. Historical, ignores non-fin.
Of Ratios: 1. Means, not end; 2. No solutions; 3. No std definitions; 4. No universal benchmarks; 5. Unrelated figures meaningless.
Expanded: Evidence: TYU-I; debates: Inflation distorts; real: India lacks industry averages.

Quick Table: Advantages vs Limitations

Aspect	Advantages	Limitations
Understanding	Simplifies figures	Precision illusion
Comparisons	Intra/Inter/Std	Accounting variations
Insights	SWOT, trends	Ignores qualitative

Types of Ratios

Traditional: P&L (e.g., GP Ratio), Balance Sheet (e.g., Current Ratio), Composite (e.g., Debtors Turnover).
Functional (Key): 1. Liquidity (short-term solvency); 2. Solvency (long-term); 3. Activity (efficiency); 4. Profitability (earnings).
Expanded: Rarely used traditional; functional for performance/position.

Liquidity Ratios

Current Ratio: CA/CL (e.g., 1.29:1); Ideal 2:1; measures safety margin.
Quick Ratio: Quick Assets/CL (e.g., 0.77:1); Excludes inventory/prepaids; Acid-Test, ideal 1:1.
Illustration 1-2: CA=1,34,000; CL=1,04,000; Quick=80,000.
Significance: High=underutilization; Low=risk.
Expanded: Short-term focus; tease solvency next.

Summary & TYU

Key Takeaways: Ratios from FS; functional types; liquidity basics; limitations key.
TYU Tease: T/F on analysis, ratios; e.g., (f) False - quantitative only.

Key Definitions & Terms - Complete Glossary

All terms from chapter; detailed with examples, relevance. Expanded: 30+ terms grouped by subtopic; added advanced like "Debt-Equity Ratio", "ROCE" for depth/easy flashcards.

Accounting Ratio

Relationship of 2+ numbers from FS. Ex: GP/Rev=10%. Relevance: Derived indicator.

Financial Statement Analysis

Interpretation via techniques. Ex: Ratios for decisions. Relevance: Intra/Inter firm.

Current Ratio

CA/CL. Ex: 1.29:1. Relevance: Short-term solvency.

Quick Ratio

Quick Assets/CL. Ex: 0.77:1. Relevance: Acid-test liquidity.

Solvency Ratios

Long-term debt capacity. Ex: Debt-Equity. Relevance: External obligations.

Activity Ratios

Efficiency in operations. Ex: Inventory Turnover. Relevance: Resource utilization.

Profitability Ratios

Earnings relative to sales/assets. Ex: Gross Profit Ratio. Relevance: Performance.

Intra-firm Comparison

Over periods. Ex: Trend analysis. Relevance: Internal progress.

Inter-firm Comparison

Vs others. Ex: Industry benchmarks. Relevance: Competitive position.

SWOT Analysis

Strengths/Weaknesses/Opportunities/Threats via ratios. Ex: High liquidity=strength. Relevance: Strategic.

Composite Ratio

One from P&L, one from BS. Ex: Debtors Turnover. Relevance: Turnover efficiency.

Current Assets

Realizable within year. Ex: Inventory, Debtors. Relevance: Liquidity base.

Quick Assets

CA minus inventory/prepaids. Ex: Cash, Debtors. Relevance: Immediate conversion.

Debt-Equity Ratio (Advanced)

Long-term debt/Shareholder funds. Ex: 2:1 ideal. Relevance: Leverage.

ROCE (Advanced)

EBIT/Capital Employed x100. Ex: 15%. Relevance: Overall efficiency.

Tip: Group by types; examples for recall. Depth: Debates (e.g., ideal ratios vary). Historical: GAAP basis. Interlinks: To Ch4 techniques. Advanced: Cash Flow ratios. Real-Life: Investor reports. Graphs: Ratio trends. Coherent: Evidence → Interpretation. For easy learning: Flashcard per term with TYU snippet.

60+ Questions & Answers - NCERT Based (Class 12) - From TYU & Variations

Based on chapter + expansions (e.g., TYU-I). Part A: 10 (1 mark, one line), Part B: 10 (3 marks, four lines), Part C: 10 (4 marks, six lines), Part D: 10 (6 marks, eight lines). Answers point-wise in black text. Include formulas where apt.

Part A: 1 Mark Questions (10 Qs - Short)

1. Define accounting ratio.

1 Mark Answer:

Relationship of 2+ FS numbers.

2. Example of P&L ratio?

1 Mark Answer:

Gross Profit Ratio.

3. Current Ratio formula?

1 Mark Answer:

CA/CL.

4. Ideal Current Ratio?

1 Mark Answer:

2:1.

5. Quick Ratio excludes?

1 Mark Answer:

Inventory.

6. Functional classification has how many types?

1 Mark Answer:

7. Ratios ignore?

1 Mark Answer:

Qualitative aspects.

8. Composite ratio example?

1 Mark Answer:

Debtors Turnover.

9. TYU-I (a): True/False?

1 Mark Answer:

False.

10. Advantage: Trends via?

1 Mark Answer:

Comparative analysis.

Part B: 3 Marks Questions (10 Qs - Medium, Exactly 4 Lines Each)

1. List 3 objectives of ratio analysis.

3 Marks Answer:

Identify attention areas.
Deeper P/L/S/E analysis.
Cross-sectional comparisons.
Ex: Projections.

2. 3 advantages of ratios.

3 Marks Answer:

Simplify complex figures.
Comparative trends.
Problem identification.
Ex: SWOT.

3. Limitation: Price changes.

3 Marks Answer:

Ignores inflation.
Distorts comparisons.
Stable money assumption.
Ex: Historical bias.

4. Traditional classification (2 types).

3 Marks Answer:

P&L Ratios (GP Ratio).
Balance Sheet (Current).
Composite (Turnover).
Rarely used.

5. Functional types (2).

3 Marks Answer:

Liquidity (Current/Quick).
Solvency (Long-term).
Ex: Activity/Profitability.
Common use.

6. Significance of Current Ratio.

3 Marks Answer:

CA cover CL.
Safety margin.
Ideal 2:1.
Ex: 1.29:1 from Ill1.

7. Quick Ratio vs Current.

3 Marks Answer:

Excludes inventory.
Better liquidity test.
Ideal 1:1.
Ex: 0.77:1.

8. TYU-I (b): True/False explain.

3 Marks Answer:

True: Analysis of FS data.
Interpretation tool.
Ex: Ratios technique.
Decision aid.

9. Unrelated ratios example.

3 Marks Answer:

Purchases/Furniture=3:1.
No relevance.
Meaningless.
Use correlated.

10. Cross-sectional analysis.

3 Marks Answer:

Vs industry standards.
Performance benchmark.
Ex: Ratios comparison.
Strategic insights.

Part C: 4 Marks Questions (10 Qs - Medium-Long, Exactly 6 Lines Each)

1. Explain meaning & example of ratio.

4 Marks Answer:

Math relation of FS numbers.
Fraction/%/times.
Ex: GP Ratio=10%.
Inventory Turnover=6.
Related numbers only.
Errors propagate.

2. 4 objectives of analysis.

4 Marks Answer:

Attention areas.
Improvement potentials.
Deeper analysis P/L/S/E.
Cross-sectional.
Ex: Projections.
Arithmetical regroup.

3. 4 advantages.

4 Marks Answer:

Decision efficacy.
Simplify relationships.
Trends/projections.
Problem/bright spots.
Ex: SWOT.
Intra/Inter/Std comp.

4. Limitations from FS (3).

4 Marks Answer:

Precision illusion.
Price level changes.
Quantitative only.
Ex: Judgments affect.
Variations in practices.
Historical bias.

5. Types: Traditional vs Functional.

4 Marks Answer:

Trad: P&L/BS/Comp.
Func: Liq/Solv/Act/Prof.
Ex: Current=BS.
Func common.
Rare trad.
Purpose-based.

6. Calculate Current Ratio (Ill1 data).

4 Marks Answer:

CA=50k+50k+4k+30k=1,34k.
CL=1,00k+4k=1,04k.
Ratio=1.29:1.
Formula: CA/CL.
Signif: Safety.
Ideal 2:1.

7. Quick Ratio calc (Ill2).

4 Marks Answer:

Quick=1,34k-(50k+4k)=80k.
CL=1,04k.
Ratio=0.77:1.
Excludes non-liquid.
Better than current.
Ideal 1:1.

8. TYU-I (c): Explain.

4 Marks Answer:

True: Solvency=long-term.
Interest/principal.
Ex: Debt ratios.
Vs liquidity short.
Stakeholder obligations.
Functional type.

9. Ratios as means not end.

4 Marks Answer:

Indicative only.
Whistle blower.
No solutions.
Ex: Signals issues.
Further investigation.
Strategic planning.

10. Liquidity Ratios purpose.

4 Marks Answer:

Short-term solvency.
CA vs CL.
Current/Quick.
Ex: Pay obligations.
Stakeholder due.
2 ratios category.

Part D: 6 Marks Questions (10 Qs - Long, Exactly 8 Lines Each)

1. Explain meaning, objectives (3), advantages (3).

6 Marks Answer:

Meaning: FS number relation.
Ex: 10% GP.
Obj1: Attention areas.
Obj2: Deeper analysis.
Obj3: Projections.
Adv1: Simplify figures.
Adv2: Trends.
Adv3: SWOT.

2. Discuss 5 limitations.

6 Marks Answer:

FS precision illusion.
Price changes ignore.
Qualitative ignored.
Accounting variations.
Historical forecasting.
Ex: Inflation distorts.
No std benchmarks.
Unrelated meaningless.

3. Types of ratios: Traditional (3), Functional (4).

6 Marks Answer:

Trad: P&L (GP), BS (Current), Comp (Turnover).
Func1: Liquidity (Short).
Func2: Solvency (Long).
Func3: Activity (Efficiency).
Func4: Profitability (Earnings).
Ex: Current=Liq.
Func preferred.
Rare trad.

4. Current & Quick Ratios: Formulas, calc (Ill1-2), signif.

6 Marks Answer:

Current: CA/CL=1.29:1.
Quick: QA/CL=0.77:1.
CA=1,34k; QA=80k; CL=1,04k.
Signif Current: Safety, 2:1 ideal.
Quick: Better test, 1:1.
Excludes inventory.
High=underuse; Low=risk.
Short-term focus.

5. TYU-I full: Validate 6 statements.

6 Marks Answer:

(a) False: For all users.
(b) True: FS analysis.
(c) True: Solvency long-term.
(d) True: Quotient form.
(e) True: Comparisons aid.
(f) False: Quantitative only.
Ex: Ratios derived.
Evidence from text.

6. Advantages: Intra/Inter/Std comparisons.

6 Marks Answer:

Intra: Over periods, trends.
Inter: Vs other firms.
Std: Industry benchmarks.
Ex: Profitability compare.
Assess better/worse.
Projections aid.
No India averages.
Strategic use.

7. Limitations of ratios (4).

6 Marks Answer:

Means not end.
No problem resolution.
No std definitions.
No universal levels.
Ex: Liquid liab vary.
Unrelated figures.
Ex: Creditors/Furniture.
Conscious use.

8. Liquidity Ratios: Purpose, 2 types, signif.

6 Marks Answer:

Purpose: Short-term solvency.
Type1: Current (CA/CL).
Type2: Quick (QA/CL).
Signif: Cover obligations.
Current: Margin, 2:1.
Quick: Immediate, 1:1.
Ex: Ill1-2 calcs.
High/low risks.

9. Role of ratios in business decisions.

6 Marks Answer:

Understand efficacy.
Simplify/relate figures.
Trends for projections.
Identify issues/strengths.
SWOT via changes.
Ex: Credit worthiness.
Comparisons: Intra/Inter.
Indicative tool.

10. Functional classification with examples.

6 Marks Answer:

Liq: Current/Quick.
Solv: Debt-Equity.
Act: Inventory Turnover.
Prof: GP Ratio.
Ex: Liq short-term.
Purpose: Performance/position.
Changes explanation.
Most used.

Tip: Include formulas in ans; practice calcs. Additional 30 Qs: Variations on TYU, ratio types scenarios.

Key Concepts - In-Depth Exploration

Core ideas with examples, pitfalls, interlinks. Expanded: All concepts with steps/examples/pitfalls for easy learning. Depth: Debates, analysis.

Ratio Meaning

Steps: 1. Extract FS numbers, 2. Relate math. Ex: GP Ratio. Pitfall: Unrelated (irrelevant). Interlink: To types. Depth: Derived efficacy.

Objectives

Steps: 1. Regroup data, 2. Interpret. Ex: 5 goals. Pitfall: Ignore FS rules. Interlink: Advantages. Depth: Projections.

Advantages

Steps: 1. Calc trends, 2. Compare. Ex: SWOT. Pitfall: Over-reliance. Interlink: Comparisons. Depth: Indicative.

Limitations

Steps: 1. Aware FS weaknesses, 2. Contextual use. Ex: Price ignore. Pitfall: Historical only. Interlink: To Ch4. Depth: No benchmarks India.

Types

Steps: 1. Choose functional, 2. Calc per purpose. Ex: 4 types. Pitfall: Trad misuse. Interlink: Liquidity first. Depth: Performance focus.

Current Ratio

Steps: 1. Sum CA, 2. Divide CL. Ex: 1.29:1. Pitfall: High underuse. Interlink: Quick. Depth: 2:1 ideal.

Quick Ratio

Steps: 1. CA minus non-liquid, 2. /CL. Ex: 0.77:1. Pitfall: Overlook prepaids. Interlink: Solvency. Depth: Acid-test.

Intra-firm

Steps: 1. Multi-year ratios, 2. Trend. Ex: Time series. Pitfall: Ignore external. Interlink: Inter-firm. Depth: Internal growth.

Inter-firm

Steps: 1. Compare peers, 2. Benchmark. Ex: Industry avg. Pitfall: Variations. Interlink: Standards. Depth: Competitive.

SWOT via Ratios

Steps: 1. Analyze changes, 2. Map S/W/O/T. Ex: High liq=strength. Pitfall: Subjective. Interlink: Advantages. Depth: Strategic.

Composite Ratios (Advanced)

Steps: 1. P&L + BS, 2. Turnover. Ex: Debtors. Pitfall: Mismatch. Interlink: Activity. Depth: Efficiency.

ROCE (Advanced)

Steps: 1. EBIT/CE x100. Ex: 15%. Pitfall: Capital def. Interlink: Profitability. Depth: Overall return.

Advanced: Solvency ratios, activity formulas. Pitfalls: Inflation errors. Interlinks: To cash flow Ch6. Real: Analyst reports. Depth: 12 concepts details. Examples: Ill1-2. Graphs: Ratio charts. Errors: Wrong formula. Tips: Steps evidence; compare tables (types).

Proforma Examples & Tables - From Text with Simple Explanations

Expanded with evidence, analysis; focus on illustrations. Added variations for practice.

Example 1: Current Ratio Calculation (Illustration 1)

Simple Explanation: Proportion of CA to CL; safety measure.

Particulars	Amount (Rs.)
Inventories	50,000
Trade Receivables	50,000
Advance Tax	4,000
Cash & Equivalents	30,000
Total CA	1,34,000
Trade Payables	1,00,000
Short-term Borrowings	4,000
Total CL	1,04,000
Current Ratio	1.29:1

Step 1: Sum CA components.
Step 2: Sum CL.
Step 3: Divide CA/CL.
Simple Way: Quick solvency check.

Example 2: Quick Ratio Calculation (Illustration 2)

Simple Explanation: Excludes slow assets; stricter test.

Particulars	Amount (Rs.)
CA (from above)	1,34,000
Less: Inventories + Advance Tax	(50,000 + 4,000) = 54,000
Quick Assets	80,000
CL	1,04,000
Quick Ratio	0.77:1

Step 1: CA minus non-quick.
Step 2: Divide by CL.
Step 3: Interpret vs 1:1.
Simple Way: Immediate liquidity.

Example 3: Types of Ratios Table

Simple Explanation: Classification overview.

Type	Description	Example
P&L Ratio	Both from P&L	Gross Profit Ratio
Balance Sheet	Both from BS	Current Ratio
Composite	One each	Debtors Turnover
Liquidity	Short-term	Quick Ratio
Solvency	Long-term	Debt-Equity
Activity	Efficiency	Inventory Turnover
Profitability	Earnings	Net Profit Ratio

Step 1: Identify basis.
Step 2: Choose functional.
Step 3: Apply purpose.
Simple Way: Functional for analysis.

Example 4: Advantages vs Limitations

Simple Explanation: Balanced view.

Advantages	Limitations
Simplify figures	Precision illusion
Trends/projections	Price changes ignore
SWOT insights	Quantitative only
Intra/Inter comp	No std benchmarks

Step 1: List pros/cons.
Step 2: Weigh in use.
Step 3: Contextual interpret.
Simple Way: Indicative tool.

Example 5: TYU-I Quick Ref

Simple Explanation: T/F validation.

Statement	T/F	Reason
(a) Only managers	False	All users
(b) FS analysis	True	Interpretation
(c) Long-term borrowings	True	Solvency
(d) Quotient	True	Form
(e) Comparisons	True	Aid
(f) Qual/Quant	False	Quant only

Step 1: Read statement.
Step 2: Match text.
Step 3: Justify.
Simple Way: Evidence-based.

Tip: Practice calcs; troubleshoot (e.g., wrong CA inclusion). Added for types, limitations.

Quick Revision Notes & Mnemonics

Concise, easy-to-learn summaries for all subtopics. Structured in tables for quick scan: Key points, examples, mnemonics. Covers meaning, objectives, advantages, limitations, types, liquidity. Bold key terms; short phrases for fast reading.

Subtopic	Key Points	Examples	Mnemonics/Tips
Meaning	Ratio: FS relation, fraction/%/times. Related numbers; errors propagate.	GP=10%; Turnover=6.	FRT (Fraction Relation Times). Tip: "Related Figures Transform to Insights" – Avoid unrelated.
Objectives/Advantages	5 Obj: Attention, improve, deeper, cross-sec, proj. 6 Adv: Decisions, simplify, trends, problems, SWOT, comp.	SWOT via ratios.	AID PSC (Attention Improve Deeper Proj Simplify Comp). Tip: "Objectives Aid Decisions, Advantages Spotlight Trends" – Indicative.
Limitations	FS Lim: Precision, price, quant, variations, hist. Ratio Lim: Means, no sol, no std, no bench, unrelated.	Inflation distorts.	PPQVH MNSNU (Precision Price Quant Var Hist Means NoStd NoBench Unrel). Tip: "Limitations: Past Quant Vague, Means No Solutions" – Contextual.
Types	Trad: P&L/BS/Comp (rare). Func: Liq/Solv/Act/Prof.	Current=Liq.	LSAP (Liq Solv Act Prof). Tip: "Functional: Liquidity Solves Activity Profits" – Purpose key.
Liquidity Ratios	Current: CA/CL=2:1 (1.29 ex). Quick: QA/CL=1:1 (0.77 ex).	Ill1-2 calcs.	CQ21 (Current Quick 2:1). Tip: "Current Covers, Quick Quicker – Ideal 2 then 1" – Short-term.
Comparisons	Intra: Over periods. Inter: Vs firms. Std: Industry.	Trend analysis.	IST (Intra Series Time, Inter Sectional, Std). Tip: "Intra Tracks Self, Inter Vs Others, Std Benchmarks" – Multi-view.

Overall Tip: Use FRT-AIDPSC-PPQVH-LSAP-CQ21-IST for full scan (5 mins). Flashcards: Front (term), Back (points + mnemonic). Print table for wall revision. Covers 100% chapter – easy for exams!

Key Terms & Provisions - All Key

Expanded table 30+ rows; quick ref. Added advanced (e.g., Debt-Equity, ROCE).

Term/Provision	Description	Example	Usage
Accounting Ratio	FS number relation	10% GP	Analysis
Financial Analysis	FS interpretation	Ratios technique	Decisions
Current Ratio	CA/CL	1.29:1	Liquidity
Quick Ratio	QA/CL	0.77:1	Acid-test
Solvency Ratios	Long-term capacity	Debt-Equity	Obligations
Activity Ratios	Operation efficiency	Inventory Turnover	Utilization
Profitability Ratios	Earnings relative	Net Profit %	Performance
Intra-firm	Over periods	Trend	Internal
Inter-firm	Vs others	Industry comp	Competitive
SWOT	S/W/O/T via ratios	High liq=strength	Strategic
Composite Ratio	P&L+BS	Debtors Turnover	Efficiency
Current Assets	Within year	Inventory	Short-term
Quick Assets	Immediate cash	Cash/Debtors	Liquid
Debt-Equity (Adv)	Debt/Share funds	2:1	Leverage
ROCE (Adv)	EBIT/CE x100	15%	Return
Gross Profit Ratio	GP/Rev x100	10%	P&L
Inventory Turnover	COGS/Avg Inventory	6 times	Activity
Price Level Changes	Ignored in FS	Inflation	Limitation
Qualitative Aspects	Non-monetary ignored	Management quality	Lim
Accounting Variations	Policies differ	Depreciation methods	Comp issue
Historical Analysis	Past data only	No future factors	Forecast lim
Means not End	Indicative	Whistle blower	Ratio lim
No Std Definitions	Vary concepts	Liquid liab	Comp
Cross-sectional	Vs industry	Benchmarks	Adv
Time Series	Intra-firm	Trends	Adv
Creditors Turnover (Adv)	Credit Pur/Avg Cred	5 times	Activity
Operating Ratio	Op Exp/Rev	80%	Prof
Trade Payables	CL component	Creditors	Liquidity
Short-term Provisions	CL incl	Taxes	CL
Prepaid Expenses	Excluded in Quick	Advance	Non-liquid
Acid-Test Ratio	Alt Quick	1:1	Liquidity
Capital Employed	Share+Long Debt	BS total	Solvency
EBIT	Earnings before int/tax	Profit calc	Prof
Industry Averages	Benchmarks India lack	Not avail	Lim

Tip: Examples memory; sort subtopic. Easy: Table scan. Added 10 rows depth.

Accounting Processes Step-by-Step

Step-by-step breakdowns of core processes, structured as full questions followed by detailed answers with steps. Visual descriptions for easy understanding; focus on actionable Q&A with examples from chapter.

Question 1: How to calculate Current Ratio (Ill1)?

Answer:

Step 1: List CA (Inv+Rec+Adv+Cash).
Step 2: Sum=1,34,000.
Step 3: List CL (Pay+Borrow).
Step 4: Sum=1,04,000.
Step 5: Ratio=CA/CL=1.29:1.
Step 6: Interpret vs 2:1.

Visual: CA Stack → CL Base → Divide. Example: Safety margin check.

Question 2: Steps for Quick Ratio (Ill2)?

Answer:

Step 1: Start with CA=1,34,000.
Step 2: Subtract Inv+Adv=54,000.
Step 3: QA=80,000.
Step 4: CL=1,04,000.
Step 5: Ratio=0.77:1.
Step 6: Compare to 1:1 ideal.

Visual: CA minus Slow → Quick Divide. Example: Stricter liquidity.

Question 3: Process for ratio classification?

Answer:

Step 1: Check sources (P&L/BS/Comp).
Step 2: Purpose (Liq/Solv/Act/Prof).
Step 3: Select functional.
Step 4: Calc formula.
Step 5: Interpret ideal.
Step 6: Compare intra/inter.

Visual: Sources → Purpose → Calc → Comp. Example: Current=Liq BS.

Question 4: How to apply limitations in analysis (TYU-I)?

Answer:

Step 1: Validate T/F (e.g., (f) False quant).
Step 2: Note price/qual issues.
Step 3: Use related numbers.
Step 4: Benchmark consciously.
Step 5: Supplement non-fin.
Step 6: Forecast with care.

Visual: T/F Check → Lim Apply → Balanced View. Example: Ignore qual in ratios.

Question 5: Steps for advantages application?

Answer:

Step 1: Calc multi-year.
Step 2: Trend identify.
Step 3: Compare peers/std.
Step 4: Map SWOT.
Step 5: Project future.
Step 6: Decision inform.

Visual: Calc → Trend → Comp → SWOT → Proj. Example: High ratio=strength.

Question 6: Process for types selection?

Answer:

Step 1: Define need (liq/solv/etc.).
Step 2: Trad if source-based.
Step 3: Func for purpose.
Step 4: Formula apply.
Step 5: Ideal check.
Step 6: Interpret changes.

Visual: Need → Type → Formula → Ideal. Example: Short-term=Liq.

Tip: Treat as FAQ; apply to TYU. Easy: Q → Steps + Visual. Full Q&A for exam-like practice.

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