Why would the purchase of inventory on credit would not increase the current ratio and instead decrease it whilst if current assets are 4 and current liabilities are 5 then if inventory of 1 is added to both the current ratio increases
Ask the Tutor ACCA FR
financial statements
3y ago#1Hi,
If we purchase the inventory on credit then inventory would increase and payables increase too by the same amount. If we use the 1 in the formula then we have the following:
Before the current ratio is 4/5 = 0.8
After the current ratio is 5/6 = 0.8333
Giving an increase in the current ratio.
Thanks
If current ratio increases then why in the bpp kit there is a question where there is inventory purchases on credit and an answer is given as current ratio decrease
Sign into reply to this topic.