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Mr Little, sir, which of the following two will decrease acid test ratio:
1) Repaying some of payables by using cash from overdraft
2) Buying some materials using cash and these materials remain in records at the period end.Thanks in advance.
The second one
The first leaves current liabilities as unchanged so no affect on acid test
The second converts a current asset into inventory so the assets used in acid test are reduced
Ok?
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