If current assets exceed current liabilities, the payment of accounts payable will:
A)decrease the current ratio.
B)increase the level of cash held.
C)increase the current ratio.
D)None of the above

Question

Quizplus · Accepted Answer

If current assets exceed current liabilities, it means the current ratio (which is current assets divided by current liabilities) is greater than 1. If accounts payable are paid off, it will decrease current liabilities, and thus increase the current ratio. Therefore, option C is the correct choice. Option A is incorrect as paying off accounts payable will not decrease the current ratio. Option B is incorrect as the level of cash held is not directly affected by paying off accounts payable. Option D is incorrect as one of the choices (C) is correct.

If Current Assets Exceed Current Liabilities, the Payment of Accounts