A client has settled his outstanding credit account with your company; at the same time,you have just received cash for inventory that you sold at cost.What is the overall impact of these concurrent changes on the current ratio?
A)There is no impact.
B)The inflow of cash caused the current ratio to rise.
C)Depends on the actual dollar amounts.
D)None of the choices are correct.

Question

Quizplus · Accepted Answer

The current ratio is unaffected because both transactions increase both current assets (cash) and current liabilities (with the settlement of the credit account) or do not affect liabilities but keep assets constant (selling inventory at cost simply converts one asset form to another without changing the total value of current assets).

A Client Has Settled His Outstanding Credit Account with Your