I should start buy saying businesses require a good knowledge and implementation of financial accounting. Most businesses are concerned with the preparation of final financial statements only to check out the gains or losses thereby.
But there are further considerations in the accounting world where a business could make a better impact in its world. Hence, it is important to examine the Accounting ratio called the Liquidity Ratio. This could also be used to mean Solvency. It is the ability of a business enterprise to pay its debts as at when due and the capacity of its debtors to pay what they owe the business.
This has to do with the striking of the assets against the liabilities of a business. The business is said to be solvent when it has the capacity to take care of its LIABILITIES and insolvent when it does not have the capacity handle every form of its LIABILITIES.
