Over the past year, the quick ratio for a firm increased while the current ratio remained constant. Given this information, which one of the following must have occurred? Assume all ratios have positive values.
A)current assets increased
B)current assets decreased
C)inventory increased
D)inventory decreased
E)accounts payable increased

Question

Quizplus · Accepted Answer

The quick ratio is a more stringent measure of liquidity compared to the current ratio as it does not include inventory in its calculation. Therefore, if the quick ratio increased while the current ratio remained constant, it means that there was a decrease in inventory. A decrease in inventory would have a positive impact on the quick ratio and no impact on the current ratio. The other options do not necessarily have a direct impact on the quick ratio.

Over the Past Year, the Quick Ratio for a Firm