Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0.
A)Cash purchase of inventory
B)Cash payment on an account receivable
C)Cash payment of an account payable
D)Credit sale of inventory at cost
E)Cash sale of inventory at a loss

Question

Quizplus · Accepted Answer

Paying off an account payable with cash reduces both current liabilities and current assets by the same amount, but since the current ratio is greater than 1.0, the reduction in liabilities has a proportionally larger effect, thus increasing the current ratio.

Which One of the Following Actions Will Increase the Current