Given a Current Ratio of 5 to 1,what Is the Effect

question 26

Multiple Choice

Given a current ratio of 5 to 1,what is the effect of paying an accounts payable to a supplier?

• A)The current ratio would increase.
• B)The current ratio would decrease.
• C)The current ratio would remain the same.
• D)The effect of the current ratio cannot be determined.

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Definitions:

Normal Credit Balance

The typical balance on the credit side of an account, as is the case for liabilities, equity, and revenue accounts.

Liabilities

Financial obligations or debts a company owes to others, which must be settled in the future by transfer of assets, provision of services, or other forms of economic benefit.

Capital

Refers to financial assets or resources that individuals, companies, or governments use to fund their operations and invest in their own growth.

Classification

The systematic arrangement of business transactions or accounts into categories for reporting and analysis purposes.