Your current assets consist of cash, accounts receivable, and inventory. Total current liabilities equal $200,000. The average collection period is 20 days on average daily credit sales of $2,500. The current ratio is 1.3 and the quick ratio is 0.625. What is the balance in the cash account?
A) $ 75,000
B) $ 65,000
C) $135,000
D) $ 50,000

Question

Quizplus · Accepted Answer

The correct answer is A. The cash balance is $75,000. The current ratio is 1.3, which means that current assets are 1.3 times current liabilities. Since current liabilities are $200,000, current assets must be $260,000. The quick ratio is 0.625, which means that quick assets (cash and accounts receivable) are 0.625 times current liabilities. Since current liabilities are $200,000, quick assets must be $125,000. Therefore, the balance in the cash account must be $75,000.

Your Current Assets Consist of Cash, Accounts Receivable, and Inventory