Question

The Quick Ratio of a company is 2 : 1. Which of the following transactions will result in decrease of this ratio?

• A. Payment of outstanding salary
• B. Cash received from debtors
• C. Sale of goods at a profit
• D. Purchase of goods for cash

Hint:

Quick Ratio excludes inventory. Transactions affecting cash but increasing stock can reduce the Quick Ratio.

Answer 1

The Correct Option is D

Quick Ratio = \(\frac{\text{Quick Assets}}{\text{Current Liabilities}}\).
Quick Assets do not include inventory. When goods are purchased for cash, inventory increases (which is not part of quick assets), but cash (a quick asset) decreases. Hence, Quick Assets go down while liabilities remain unchanged, decreasing the ratio.