Question

What will be the impact of ‘Cash collected from Trade Receivables’ on a Current ratio of 2 : 1? State with reason.

Answer 1

When cash is collected from trade receivables with a current ratio of 2 : 1, the current ratio remains constant. This is because cash increases but accounts receivable decrease by the same amount, keeping total current assets unchanged. Since current liabilities are unaffected, the current ratio remains at 2 : 1.