The current ratio for a firm is 3.68. If the firm then purchases supplies on account, the current ratio will:
A) Decrease
B) Increase
C) Be unaffected
D) Insufficient information

Question

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay its current liabilities using its current assets. When the firm purchases supplies on account, its current liabilities increase while its current assets (cash or accounts receivable) remain unchanged. This decrease in the current asset to current liability ratio causes the current ratio to decrease. Therefore, the correct answer is A) Decrease.

The Current Ratio for a Firm Is 3