quick ratio Question 45 BPP

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May 24, 2018 at 3:56 pm #453773
nayazrojid1
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Hello sir,
I recall that changes in inventory do not impact the quick ratio at all. But the answer to this MCQ says that the quick ratio changes when inventory is sold on credit.. can you please explain on when the quick ratio does not change and when it does in regards to inventory please?

Kind regards,
Rojid Nayaz.
May 24, 2018 at 5:12 pm #453786
John Moffat
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If you have watched my free lectures, you will know the the quick ratio is (current assets – inventory) / current liabilities.

If inventory is sold on credit then although the inventory falls (which does not affect the numerator) the receivables will increase (which does affect the numerator).

This is from Paper F3 🙂
May 24, 2018 at 5:16 pm #453789
nayazrojid1
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i thought that a change in inventory does not affect the quick ratio. Is that correct sir?
May 24, 2018 at 5:24 pm #453798
John Moffat
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Have you actually read what I replied in my previous post???

The inventory itself does not affect the quick ratio, but if you sell on credit then receivables change and receivables obviously do affect the quick ratio!
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