Assume that a company has an operating cash flow ratio of 0.75. Payment of accrued wages payable would cause the operating cash flow ratio to
A)decrease.
B)increase.
C)be unchanged since the effects offset one another.
D)be unchanged since it has no impact on any current liability or operating cash flow accounts.

Question

Quizplus · Accepted Answer

The operating cash flow ratio is calculated by dividing operating cash flow by current liabilities. Accrued wages payable is a current liability, and paying it would decrease the amount of current liabilities. Since the denominator of the ratio would decrease while the numerator remained the same, the result would be a decrease in the operating cash flow ratio. Therefore, the correct answer is A) decrease.

Assume That a Company Has an Operating Cash Flow Ratio