The quick ratio decreases when the adjusting entry to record bad debt expense is recorded.

Question

Quizplus · Accepted Answer

The quick ratio is calculated by subtracting the value of inventories from current assets and dividing by current liabilities. Bad debt expense is a non-cash expense that reduces the value of accounts receivables, which are included in current assets. Therefore, when the adjusting entry to record bad debt expense is recorded, it reduces the value of current assets and the quick ratio decreases.

The Quick Ratio Decreases When the Adjusting Entry to Record