wiz-icon
MyQuestionIcon
MyQuestionIcon
1
You visited us 1 times! Enjoying our articles? Unlock Full Access!
Question

Quick ratio of a company is 1.5:1. State with reason, whether the purchase of inventory for cash will improve, reduce or not change in the ratio.

Open in App
Solution



Dear Student,

Quick Ratio = Quick AssetsCurrent Liabilities

Purchase of inventory for cash increases the inventory and reduces the cash.
However, inventory is not included in the quick assets. Only cash is a part of the current assets.

So, in the quick ratio,due to this transaction, the quick assets will get reduced and thus the numerator will get reduced having
no effect on the denominator. This will reduce the quick ratio,

Regards

flag
Suggest Corrections
thumbs-up
0
similar_icon
Similar questions
View More
Join BYJU'S Learning Program
similar_icon
Related Videos
thumbnail
lock
Activity Ratios
ACCOUNTANCY
Watch in App
Join BYJU'S Learning Program
CrossIcon