Which of the following actions would NOT affect the quick / liquid ratio of a firm?

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BlackTom AI · Accepted Answer

First, recall the quick (acid-test) ratio formula: Quick ratio = (cash + marketable securities + accounts receivable) / current liabilities. It measures a firm’s ability to meet short-term obligations with the most liquid assets. Now evaluate each option in light of how it would alter liquid assets or current liabilities.
Option a: Purchase inventory on credit. This increases current liabilities (accounts payable) while not immediately increasing quick assets, since inventory is not part of the quick assets denominator. As a result, the numerator only changes if inventory is converted to cash quickly, but at the moment of the action the quick ratio would tend to fall because liabilities rise without an immediate rise in liquid assets.
Option b: Sell fixed assets for cash. Selling fixed assets converts a less-liquid asset into cash, increasing the cash portion of the numerator. Since current liabilities are unaffected, the quick ratio would improve (the numerator grows while the denominator stays the same).
Option c: Sell inventory on credit. When inventory is sold on credit, accounts receivable increases and cash does not rise immediately. The numerator increases due to higher AR, while current liabilities are unchanged, so the quick ratio would improve or at least not worsen, depending on timing of cash collection.
Option d: Collect outstanding accounts receivable. Collecting AR converts receivables into cash, decreasing AR and increasing cash by the same amount. The total quick-asset numerator (cash + AR) remains the same, and current liabilities are unchanged, so the quick ratio remains essentially unchanged.
In summary, actions that change current liabilities or alter the liquid asset mix can move the quick ratio, while collecting AR leaves the quick ratio unchanged because it merely shifts composition between cash and AR without changing total quick assets or current liabilities.

MCD2150 Accounting for Managers - Trimester 2 - 2025

Which of the following actions would NOT affect the quick / liquid ratio of a firm?

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