If a company uses cash to pay off some of its accounts payables, what effect will this have on its liquidity ratios, given that the ratios exceeded 1.0 before the payoff?
A)The quick ratio and current ratio will both increase
B)The quick ratio and the current ratio will both decrease
C)The quick ratio will increase but the current ratio will remain unchanged
D)The current ratio will increase but the quick ratio will remain unchanged

Question

Quizplus · Accepted Answer

Using cash to pay off accounts payables will reduce current liabilities, thus increasing both the quick ratio and current ratio. As both ratios exceeded 1.0 before the payoff, increasing them will only further improve the company's liquidity position.

If a Company Uses Cash to Pay Off Some of Its