How Would the Quick Ratio Be Affected by a Prepayment

question 14

Multiple Choice

How would the quick ratio be affected by a prepayment of $30,000 for fire and liability insurance?

• A) The quick ratio would increase.
• B) The quick ratio would decrease.
• C) The quick ratio would not change.
• D) The effect cannot be determined from the information given.

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Definitions:

Credit Terms

The conditions under which credit will be extended to a customer, including the repayment time frame and any interest or finance charges.

Credit Terms

Conditions under which credit is extended by a seller to a buyer, detailing the repayment period, discount for early payment, and the due date.

Controlling Accounts

Controlling accounts are general ledger accounts that summarize the balances of a group of subsidiary accounts in a double-entry bookkeeping system.

Accounts Receivable

An asset account that records amounts to be received from customers for goods sold or services rendered on credit.