Which of the following transactions will not increase the cash ratio?
A)Receiving cash from a common stock issue.
B)Refinancing a current liability with long-term debt.
C)Using cash to purchase a two-month treasury bill.
D)Collecting an account receivable.

Question

Quizplus · Accepted Answer

The cash ratio is calculated by dividing cash and cash equivalents by current liabilities. Purchasing a treasury bill with cash would decrease the amount of cash available, but current liabilities would not be affected. Therefore, the cash ratio would decrease. Receiving cash from a common stock issue and collecting an account receivable increase the amount of cash available, which would increase the cash ratio. Refinancing a current liability with long-term debt does not affect the amount of cash or current liabilities, so it would have no effect on the cash ratio.

Which of the Following Transactions Will Not Increase the Cash