Yesterday, Pula Corporation purchased (and received) raw materials on credit from its supplier.All else equal, if Pula's current ratio was 2.0 before the purchase, what effect did this transaction have on Pula's current ratio?

Question

Quizplus · Accepted Answer

The purchase of raw materials on credit increases both current assets (inventory) and current liabilities (accounts payable) by the same amount. Since the current ratio is current assets divided by current liabilities, and the ratio was initially 2.0, adding equal amounts to both the numerator and denominator will decrease the ratio.

Yesterday, Pula Corporation Purchased (And Received) Raw Materials on Credit