Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

Which transaction causes a decrease in the Current Ratio and an increase in the Quick Ratio?

Options:

Purchase of Stock-in-Trade for cash

Cash payment of Non-current Liability

Sale of Non-current Assets for Cash

Sale of stock at a loss

Correct Answer:

Sale of stock at a loss

Explanation:

Quick ratio can increase if there is no decrease in quick assets which is possible with option 3 and 4.
Current ratio can decrease if there is a decrease in current asset which can be possible with option 4 as a loss will make the current asset to reduce( e.g sale of goods of ₹10000 at a loss of ₹8000, will reduce the current asset with ₹2000).