Assuming an acid-test ratio of 1.0,how will the purchase of inventory with cash affect the ratio?
A)Increase the acid-test ratio.
B)No change to the acid-test ratio.
C)Decrease the acid-test ratio.

Question

Quizplus · Accepted Answer

Purchasing inventory with cash will decrease the amount of cash on hand, which is included in the calculation of the acid-test ratio. However, inventory is not included in the ratio, so the overall result will be a decrease in the acid-test ratio.

Assuming an Acid-Test Ratio of 1