A Indicate the Effect of a Sale of Merchandise on Account

question 48

Essay

a. Indicate the effect of a sale of merchandise on account (on credit) on each of the following items. Assume the selling price exceeds the cost of the inventory. Use "Increase," "Decrease," or "No effect" to express your answer for each, and place your answers in the spaces provided.
$$\begin{array} { | l | l | } \hline \text { Current ratio } & \quad\quad\quad\quad\quad\\\hline \text { Quick ratio } & \\\hline \text { Arvertay turnover} & \\\hline \text { Arset turnover } & \\\hline\end{array}$$
b. Indicate the effect of a payment of an account payable on each of the following items. Assume that the first two ratios exceeded 1.0 before the transaction. Use "Increase," "Decrease," or "No effect" to express your answer for each, and place your answers in the spaces provided.
$\begin{array}{|l|l|}\hline \text { Curent ratio } &\quad\quad\quad\quad \\\hline \text { Quick ratio } & \\\hline \text { Return on equity } & \\\hline \text { Receivable turnover } & \\\hline\end{array}$

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Definitions:

Patents

Patents are government grants that give inventors exclusive rights to their inventions, preventing others from making, using, or selling the invention for a certain period.

Capital Expenditure

Resources utilized by a business to purchase, improve, and upkeep tangible assets like real estate, factories, or machinery.

Debit

An accounting entry that results in either an increase in assets or a decrease in liabilities or equity on a company’s balance sheet.

Asset Account

An account on a balance sheet that represents a resource owned or controlled by a company, expected to produce future economic benefits.