Question

State one transaction which results in an increase in ‘Liquid Ratio’ and no change in ‘Current Ratio’.

Answer 1

One transaction that results in an increase in the Liquid Ratio and no change in the Current Ratio is the Sale of Inventory at Cost Price. Sales reduce inventory, which is less liquid, and increase cash, which is more liquid. Cash increases fast assets, improving the Liquid Ratio while maintaining current assets. Since total current assets and liabilities stay unchanged, the Current Ratio does not change. This transaction raises the Liquid Ratio without affecting the Current Ratio.