Day: January 17, 2023

Alex plc has a current ratio of 1.75 : 1 and a liquid capital (quick / acid test) ratio of 1 : 1.

The business sells inventory on credit at its usual mark-up.

What is the effect of this on the current ratio and quick (acid test) ratio if they sell more goods to customers on the usual credit and price terms?

Select ONE answer:

1. current ratio quick DECREASE & (acid test) ratio DECREASE
2. current ratio quick DECREASE & (acid test) ratio INCREASE
3. current ratio quick INCREASE & (acid test) ratio DECREASE
4. current ratio quick INCREASE & (acid test) ratio INCREASE

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct

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