Question

A transaction involving an increase in Current Ratio but no change in Working Capital:

Options

• Purchase of goods on credit

• Cash payment of Non-current Liability

• Payment to a Trade Creditor

• Sale of Fixed Assets for Cash

Answer 1

Payment to a Trade Creditor

Explanation:

Paying a trade creditor reduces Current Assets (Cash) and Current Liabilities (Trade Payables) by the exact same amount. Because both sides decrease equally, the absolute difference between them stays identical, leaving Working Capital completely unchanged. However, for an initial Current Ratio greater than 1 : 1, an equal reduction in both the numerator and denominator mathematically causes the overall Current Ratio to increase.