Question

A transaction involving increase in both Current Ratio and Quick Ratio:

Options

• Purchase of Stock-in-Trade on Credit

• Sale of Stock at Loss

• Cash payment of Non-current Liability

• Sale of Non-current Asset for Cash

Answer 1

Sale of Non-current Asset for Cash

Explanation:

Selling a non-current asset for cash directly increases your cash balance, which is a component of both Current Assets and Quick Assets. At the same time, this transaction has no effect on Current Liabilities. Since the numerators for both ratios increase while the common denominator remains unchanged, both the Current Ratio and the Quick Ratio rise simultaneously.