The Current Ratio of a Company is 2: 1. State Giving Reason Whether Purchase of Goods on Credit Will Increase, Decrease Or Not Change the Ratio. - Accountancy

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Short Note

Answer the following question:
The current ratio of a company is 2: 1. State giving reason whether the purchase of goods on credit will increase, decrease, or not change the ratio.

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Decline, as both Current Assets and Current Liabilities, have increased due to the purchase of goods on credit.
For example, a company has Current Assets of ₹ 2,00,000 and Current Liabilities of  ₹ 1,00,000. Afterward, goods of ₹ 10,000 were purchased on credit.

Current Ratio = `"Current Assets"/"Current Liabilities" = (2,00,000 + 10,000∗)/(1,00,000+10,000∗) = 1.9090 : 1`

∗ Purchase of goods on credit will increase the stock and increase the creditors by ₹10,000

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