Question

State one transaction which result in increase in liquid ratio and no change in current

ratio.
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Answer 1

Answer:

• Receiving payment from a debtor.

The quick ratio does not include accounts receivable because generally accounts receivable takes > 1 month to turn into cash. But it does include cash, so converting accounts receivable to cash increases the quick ratio.

Both cash and accounts receivable effect the current ratio, but because you’re changing from one to the other, the net effect on the current ratio will be nothing.

• Sale of inventory at cost Price.
• sale of stock at cost price