As treasury assistant at Delicious cakes.com, you have been asked to prepare a report explaining liquidity management using the Statement of profit and loss and the Statement of Financial Position.

Your answer should include calculations to support your report as well as the following areas:

• Define Liquidity
• Three main sources of liquidity
• Working capital cycle
• Explain what liquid assets are with examples
• Overtrading
• Overcapitalization

Statement of profit or loss (Extract)
	AED	AED
Sales		500,000
Less: Cost of Sales
Opening inventory	120,000
Purchases	300,000
	420,000
Less: Closing inventory	(80,000)
		340,000
Gross profit		160,000

Statement of Financial position (Extract)
	AED	AED
Current Assets
Inventory	80,000
Receivables	93,000
Cash	17,000
		190,000
Current Liabilities
Payables		55,000