A company's current ratio is 2.00. If the company makes a payment on account, what is the effect on the current ratio?

Question

Quizplus · Accepted Answer

When a company makes a payment on account, it reduces both current liabilities and current assets by the same amount. Since the current ratio is calculated as current assets divided by current liabilities, reducing both by the same amount will increase the current ratio if the ratio is initially greater than 1.

A Company's Current Ratio Is 2