Collections from book debts:

The correct answer is Option (3) → no effect on current ratio

Current ratio = Current Assets ÷ Current Liabilities. When cash is collected from debtors, one current asset (debtors) goes down and another current asset (cash) goes up by the same amount. Total current assets and current liabilities stay the same, so the ratio does not change.

Option (1) increases current ratio — Incorrect. The ratio would rise only if current assets rose or current liabilities fell; neither happens.

Option (2) decreases current ratio — Incorrect. No current asset is lost and no current liability is added.

Option (4) none of the above — Incorrect. Option (3) describes the effect.