If Current Assets Exceed Current Liabilities, Prepaying an Expense on the Last

question 67

Multiple Choice

If current assets exceed current liabilities, prepaying an expense on the last day of the year will:

• A) decrease the current ratio.
• B) increase the acid-test ratio.
• C) decrease the acid-test ratio.
• D) increase the current ratio.

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Definitions:

Gross Profit

The difference between sales revenue and the cost of goods sold before accounting for other expenses, indicating the fundamental profitability of a company's products or services.

Total Current Assets

The sum of all assets owned by a company that are expected to be converted into cash, sold, or consumed within one year or a business cycle, whichever is longer.

Cash Collection

The process of gathering all cash received from sales, services, and other sources.

Bad Debt Expense

The cost associated with accounts receivable that a company is unable to collect from its debtors.