Assuming a current ratio of 1.2 and an acid-test ratio of 0.80,how will an increase in accounts receivable affect each ratio?
A)No change to the current ratio and decrease the acid-test ratio.
B)Increase the current ratio and increase the acid-test ratio.
C)Decrease the current ratio and decrease the acid-test ratio.

Question

Quizplus · Accepted Answer

An increase in accounts receivable increases both the current ratio and the acid-test ratio because accounts receivable are considered a current asset, thus increasing the numerator in both ratios.

Assuming a Current Ratio of 1