A company's current ratio and its acid-test ratio are both greater than 1. Payment of an account payable would:
A) increase the current ratio but the acid-test ratio would not be affected.
B) increase the acid-test ratio but the current ratio would not be affected.
C) increase both the current and acid-test ratios.
D) decrease both the current and acid-test ratios.

Question

Quizplus · Accepted Answer

Paying off an account payable decreases current liabilities without affecting current assets or quick assets, thus increasing both the current ratio (current assets/current liabilities) and the acid-test ratio (quick assets/current liabilities).

A Company's Current Ratio and Its Acid-Test Ratio Are Both