Question

create your own example of the Debt Utilization Ratio of debt to total assets ratio. You answer should result in a percentage. Also, distinguish the difference between Revenue and net income and give the four steps of the Accounting Cycle.

Answer 1

As we know the debt to total assets ratio is an indicator of a company's financial leverage. It tells you the percentage of a company's total assets that were financed by creditors. In other words, it is the total amount of a company's liabilities divided by the total amount of the company's assets.

Note: Debt includes more than loans and bonds payable. Debt is the total amount of all liabilities (current liabilities and long-term liabilities).

Example of Debt to Total Assets Ratio

Let's assume that a corporation has $100 million in total assets, $40 million in total liabilities, and $60 million in stockholders' equity. This corporation's debt to total assets ratio is 0.4 ($40 million of liabilities divided by $100 million of assets), 0.4 to 1, or 40%. This indicates 40% of the corporation's assets are being financed by the creditors, and the owners are providing 60% of the assets' cost. Generally, the higher the debt to total assets ratio, the greater the financial leverage and the greater the risk.

How it can be used: As we know with all financial ratios, it is best for a company to compare its debt to total assets ratio to:

• its ratio at an earlier date
• its targeted ratio...its goal
• the ratios at companies in the same industry

Revenue is the money flowing in to your business, whereas net income it was is left after paying the expenses of the business. Revenue comes in the form of sales of product or services or other business income sources. After subtracting the cost of inventory, labor, supplies, and other operating expenses (rent, utilities, other employee benefits, etc.), interest, and depreciation, what is left is called net income. If the expenses of the business are GREATER than the revenue, the business would have a net LOSS instead of a net INCOME. It is common to provide figures for net income before taxes and then list the net income after taxes are subtracted. Shareholders are most interested in this bottom line figure because it demonstrates whether or not the business has enough to cover all expenses. If the company can meet it’s obligations and still have income left over it is an attractive investment option for shareholders, which ultimately increases share price (provided it is publicly traded.) Or

We can say

Revenue in the simplest terms is the money you receive from your sales and or the total of all your invoices for a period regardless of what you have received in cash. There are two ways to account for revenues, a cash way which is what you receive in cash or an accrual way, which is how much you sold without taking money into account

Net profit is revenues minus all of your business expense. Again in the cash way, you only deduct for the money you spend on expenses. On the accrual way, you expense all of your bills without caring if have paid it yet or not.

The first four steps in the accounting cycle are (1) identify and analyze transactions

(2) record transactions to a journal

(3) post journal information to a ledger, and

(4) prepare an unadjusted trial balance.

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