This equation computes a liquidity ratio or the current or working capital position, a measures of the company's ability to pay short-term liabilities.

Liquidity Ratio = Current Assets / Current Liabilities

The individual assets and liabilities are entered into the data set, "Assets and Liabilities", so you can break down assets and liabilities to whatever level of detail is desired.

Inputs

This equation has no direct inputs.  The assets and liabilities are entered into columns of the data set, "Assets and Liabilities".

Description

Capital is closely related to this liquidity ratio and is sometimes called the Accounting Equation.  Capital is the  economic resource measured in terms of money used by a business to buy what they need to make their products or to provide their services.

The Accounting Equation represents the relationship between the assets, liabilities, and the capital of a business.  This is a version of the foundational Accounting Equation solving for total capital, a bottom line metric for financial stability.

Usage

A double-entry bookkeeping tracks both assets and liabilities. When there is an increase or decrease in one account, there will be corresponding equal decrease or increase in another account. The rules summarizing the relationships between the five types of accounts are:

1. Assets Accounts - a debit transaction increases assets and a credit transaction decreases assets
2. Capital Account -  a credit transaction increases capital and a debit transaction decreases capital
3. Liabilities Accounts: a credit transaction increases liabilities and a debit transaction decreases liabilities
4. Revenues or Incomes Accounts: a credit transaction increases incomes and gains, and a debit transaction decreases incomes and gains
5. Expenses or Losses Accounts: a debit transaction increases expenses and losses, and a credit transaction decreases expenses and losses

You can create your own version of this equation and its attached data set by doing the following:

• Duplicate this equation
• Duplicate the "Assets and Liabilities" data set
• Replace the UUID of the "Assets and Liabilities" data set with your new dataset in your newly duplicated equation

REFERENCE

[1] Accounting Equation
Source: Wikipedia
URL: http://en.wikipedia.org/wiki/Accounting_equation
 License: CC Attribution-ShareAlike 4.0 International 

[2] Double-entry bookkeeping system
Source: Wikipedia
URL:
 License: CC Attribution-ShareAlike 4.0 International 

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