Question

The Quick Ratio of a company is \(1 : 2\). Which of the following transactions will result in an increase in this ratio?

• A. Cash received from debtors
• B. Sold goods on credit
• C. Purchased goods on credit
• D. Purchased goods on cash

Hint:

To increase the quick ratio, either reduce current liabilities or increase quick assets (excluding inventory and prepaid expenses).

Answer 1

The Correct Option is D

The quick ratio, calculated as \[\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}.\], increases when goods are purchased with cash. This action reduces inventory (a non-quick asset) without impacting current liabilities, thereby raising the quick ratio.