Question:medium
The Quick Ratio of a company is 2 : 1. Which of the following transactions will result in decrease of this ratio?
The Quick Ratio of a company is 2 : 1. Which of the following transactions will result in decrease of this ratio?
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Quick Ratio excludes inventory. Transactions affecting cash but increasing stock can reduce the Quick Ratio.
Updated On: Feb 9, 2026
- Payment of outstanding salary
- Cash received from debtors
- Sale of goods at a profit
- Purchase of goods for cash
Show Solution
The Correct Option is D
Solution and Explanation
Quick Ratio = \( \frac{\text{Quick Assets}}{\text{Current Liabilities}} \).
Quick Assets exclude inventory. When inventory is bought with cash, inventory rises (not included in quick assets), but cash (a quick asset) falls. Consequently, quick assets decrease while liabilities stay the same, reducing the ratio.
Quick Assets exclude inventory. When inventory is bought with cash, inventory rises (not included in quick assets), but cash (a quick asset) falls. Consequently, quick assets decrease while liabilities stay the same, reducing the ratio.
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