If a company bought inventory on account, what would be the effect on the company's current ratio and debt-to-equity ratio?
$\begin{array}{ll}
&\text { Current } & \text { Debt-to-Equity } \
&\text { Ratio } & \text { Ratio } \
A.&\text { increase } & \text { increase } \
B.&\text { increase } & \text { decrease } \
C.&\text { decrease } & \text { increase } \
D.&\text { decrease } & \text { decrease }
\end{array}$
A)Option A
B)Option B
C)Option C
D)Option D

Question

Quizplus · Accepted Answer

Buying inventory on account increases both current assets (inventory) and current liabilities (accounts payable), which could decrease the current ratio if the ratio of current liabilities to current assets increases. It also increases total liabilities (through the increase in accounts payable), which increases the debt-to-equity ratio as more debt is taken on relative to equity.

If a Company Bought Inventory on Account, What Would Be