Which of the following transactions will improve the quick ratio? |
Sale of goods for cash Sale of goods on credit Issue of new shares for cash All of the above |
All of the above |
The correct answer is option 4- All of the above. Sale of goods for cash, Sale of goods on credit, Issue of new shares for cash all will improve the quick ratio. Liquid ratio = Liquid assets/Current liabilities Sale of goods for cash- It makes to increase of cash and inventory is not included in the liquid assets. So, liquid assets are increased by cash amount and there is no effect on current liabilities. Hence, the liquid ratio will increase. Sale of goods on credit- It makes to increase of debtors and inventory is not included in the liquid assets. So, liquid assets are increased by debtors amount and there is no effect on current liabilities. Hence, the liquid ratio will increase. Issue of new shares for cash- It makes to increase of cash. Shares will increase the equity. So, liquid assets are increased by cash amount and there is no effect on current liabilities. Hence, the liquid ratio will increase. |