A company that sells primarily on a cash basis could support a lower current ratio because their cash inflow is faster than a company selling on credit.

Question

Quizplus · Accepted Answer

Since a company selling primarily on a cash basis receives cash immediately for its sales, it has a faster cash inflow. This means that it may not require as much working capital to run its operations, allowing it to support a lower current ratio. In contrast, a company selling on credit may have a slower cash inflow and a higher accounts receivable balance, requiring a higher current ratio to meet its short-term obligations.

A Company That Sells Primarily on a Cash Basis Could