Assume the current ratio is 2 to 1. Payment on accrued salaries payable would cause the current ratio to
A) decrease.
B) be unchanged since the effects offset one another.
C) increase.
D) be unchanged since it has no impact on any current accounts.

Question

Quizplus · Accepted Answer

Paying accrued salaries reduces both current liabilities and current assets by the same amount, but since the current ratio is greater than 1, the reduction in liabilities has a greater proportional effect, thus increasing the current ratio.

Assume the Current Ratio Is 2 to 1