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One of the question says that in order to increase the current ratio, company should
Make an early payment to suppliers, even though the amount is not due. How could this be? If the company makes an early payment to suppliers, won’t that reduce its cash?these were the rest of the options. According to me it should be the bulk purchase of inventory since that increases the current assets which will result in increased current ratio
Return some inventory which had been purchased for cash and obtain a full refund on the cost
Make a bulk purchase of inventory for cash to obtain a large discount
Offer early payment discounts in order to collect receivables more quickly
Imagine current assets:
Inventory 500
Receivables 400
Cash 600Total current assets 1,500
Payables 700
Current ratio 2.14:1
Now pay 300 of those payables
Current assets fall to 1,200, payables fall to 400
Current ratio 3:1
You should get used to this technique … make up figures and then try your solutions with these pretend amounts
OK?
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